PRESENT: Carrico, C.J., Lacy, Hassell, Keenan, Koontz, and
Kinser, JJ., and Whiting, Senior Justice
COCA-COLA BOTTLING COMPANY
OF ROANOKE, INC.
OPINION BY
v. Record No. 990409 SENIOR JUSTICE HENRY H. WHITING
March 3, 2000
COUNTY OF BOTETOURT
FROM THE CIRCUIT COURT OF BOTETOURT COUNTY
George E. Honts, III, Judge
The issue in this appeal is whether personal property was
used (1) in a sales business and subject to local taxation, as
the trial court held, or (2) in a manufacturing business and a
part of the Commonwealth's tax base as set forth in Code § 58.1-
1100, as the taxpayer contends.
Code § 58.1-1100 segregates most of the capital of a trade
or business as intangible personal property subject to state
taxation only. As pertinent here, one class of such intangible
personal property is defined in Code § 58.1-1101(A)(2) as
"[c]apital which is personal property, tangible in fact, used in
manufacturing . . . businesses." The tax on tangible personal
property used in a sales business is assessed by localities.
Code § 58.1-3500 (all tangible personal property taxed by
localities except property classified as intangible personal
property under Code § 58.1-1100 or merchants' capital taxable
under Code § 58.1-3510).
Coca-Cola Bottling Company of Roanoke, Inc. (the taxpayer)
filed an application in the circuit court under the provisions
of Code § 58.1-3984 seeking a correction in Botetourt County's
assessment of the taxpayer's 1994 local tangible personal
property taxes. 1 The taxpayer alleged that the county improperly
assessed vending equipment as personal property used in a sales
business. The county filed an answer denying that the
assessment was erroneous.
After overruling the taxpayer's motion for summary judgment
on the pleadings, the court heard evidence and viewed the
taxpayer's plant. Following argument and consideration of
memoranda from counsel, the court denied the taxpayer's
petition, holding that the property in issue was not used in the
taxpayer's manufacturing business, but was used as part of the
taxpayer's separate sales business. The taxpayer appeals.
The evidence, substantially undisputed, shows the
following. The taxpayer operates under a license from the
holder of a franchise from The Coca-Cola Company for the
production, distribution, and sale of Coca-Cola products. The
1
Code § 58.1-3984 provides that a taxpayer, aggrieved by a local
tax assessment, may apply for relief in the local circuit court.
The proceedings are conducted by the court sitting without a
jury, and the burden of proof is upon the taxpayer to show that
the assessment was invalid or illegal.
2
taxpayer's portion of the franchise area encompasses
southwestern Virginia, a portion of the southern Piedmont of
Virginia, a portion of northeastern Tennessee and a portion of
southeastern West Virginia. The taxpayer's license had the
required approval of The Coca-Cola Company and is subject to the
terms of the licensor's franchise.
Most of the taxpayer's product is mixed and bottled in its
Roanoke plant, moved into its warehouses located throughout its
franchise territory, and distributed from the warehouses to the
wholesale purchasers. Approximately one-third of the taxpayer's
employees are engaged in the manufacture of its product. The
remainder are engaged in administration, distribution and sales
activities.
The taxpayer wholesales most of its product to retailers
such as supermarkets, convenience stores, discount retailers,
hotels, motels, restaurants, gasoline filling stations, and
other such retail outlets. The taxpayer's wholesale customers
retail some cooled drinks in cooling and dispensing equipment
furnished by the taxpayer.
The taxpayer retails a smaller, but substantial, portion of
its product in coin operated machines owned or rented by it.
The tax status of the vending machines, coolers, and fountain
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equipment which the taxpayer owns or rents from others is the
subject of this opinion. 2
Citing County of Chesterfield v. BBC Brown Boveri, Inc.,
238 Va. 64, 380 S.E.2d 890 (1989), the taxpayer argues that if a
substantial part of a firm's business consists of the actual
process of manufacturing, the firm is a manufacturing business
for tax purposes notwithstanding its performance of non-
manufacturing activities. And the taxpayer points out that the
trial court found that a substantial part of its business
consisted of manufacturing. 3
However, for a number of reasons, the taxpayer contests the
court's finding that it conducted a separate sales business in
which it used the taxed equipment. This finding subjected the
taxpayer to another statutory provision that if a taxpayer is
engaged in more than one business, the taxpayer "shall pay the
tax provided by law on each branch of . . . its business." Code
§ 58.1-5.
2
It makes no difference whether the taxpayer owns or leases the
personal property in question. Its use determines its tax
status. City of Martinsville v. Tultex Corp., 238 Va. 59, 63,
381 S.E.2d 6, 8 (1989).
3
At trial, the county argued that the taxpayer was not a
manufacturer under Code § 58.1-1102(A)(2), but it has not
assigned cross-error to the court's ruling on this issue.
4
The taxpayer's first contention is that the franchise
agreement, which controlled its licensing agreement, did not
permit either the taxpayer's manufacturing or sales "activity
[to] be performed independently of the other." Although the
franchise agreement is not a part of the record, we will assume
that the taxpayer correctly characterizes its terms.
Additionally, the taxpayer quotes in part the court's
description of its manufacturing, distribution, and sales
activities as "vertically integrated functions." Whether a
taxpayer's activities are considered as two separate businesses
for tax purposes, however, is not determined by the formal
structure of the taxpayer's functions or the taxpayer's relation
to its franchiser. Rather, that issue is determined by the
manner in which the taxpayer actually conducts its business.
See Caffee v. City of Portsmouth, 203 Va. 928, 930-31, 128
S.E.2d 421, 422-23 (1962)(retail and wholesale sales in
salesroom portion of bakery's manufacturing plant constitute a
separate sales business for local license tax purposes). Thus,
we reject the taxpayer's claim that the terms of the franchise
agreement and its own organizational structure determine its tax
status.
Nevertheless, the taxpayer maintains that if a taxpayer is
a manufacturer under Code § 58.1-1101(A)(2), it cannot also be
classified as conducting a sales business. The taxpayer claims
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that the Caffee ruling is inapplicable here because the license
tax statutes involved in Caffee are unlike the statutes involved
in this case. In Caffee, we said the license tax statutes "show
that the legislature has not classified the business of
production and disposition of goods by a manufacturer into a
single, separate subject of taxation." 203 Va. at 932, 128
S.E.2d at 424. Yet the taxpayer does not indicate in what way
Code § 58.1-110l(A)(2) has classified the production and sale of
goods into a single business.
Instead, the taxpayer interprets BBC Brown Boveri as
holding that "[Code] § 58.1-1101(A)(2) classifies a business
that engages in manufacturing and non-manufacturing activities
exclusively as a manufacturer, provided that its manufacturing
activities are substantial." Significantly, the taxpayer
provides no supporting page citation for this proposition from
BBC Brown Boveri. Instead, we find the following statement in
that case:
Another area of dispute is whether the design and
engineering stages of a manufacturing job constitute
manufacturing. The record discloses that [the taxpayer's]
design and engineering work was ancillary either to
original manufacturing work or to a rebuilding job. Thus,
because [the taxpayer's] design and engineering are
integral parts of its manufacturing activity, such work is
properly classified as manufacturing.
238 Va. at 70 n.5, 380 S.E.2d at 893 n.5.
6
Obviously, the BBC Brown Boveri dispute was not resolved by
applying the taxpayer's interpretation, but by considering that
the described design and engineering work was a part of the
later process of manufacturing. Unlike the situation in BBC
Brown Boveri, in this case, the taxpayer's subsequent sales
activities were not a part of its manufacturing process.
The taxpayer argues, however, that the sales activity in
the taxed equipment indirectly affects its manufacturing
activity because it, like every manufacturer, must sell its
manufactured product in order to continue that activity. We
effectively rejected this argument by our holding in Caffee that
Caffee's sales room, which disposed of almost all its
manufactured product, was a separate sales business. 203 Va. at
930-31, 128 S.E.2d at 422-23.
Thus, we agree with the County that the following rule from
Caffee applies in this case.
"The business of manufacturing an article is . . .
essentially different from that of selling the article
after it has been manufactured. And the fact that the
article is manufactured for sale cannot have the effect of
obliterating the line of demarkation between the two
businesses."
203 Va. at 930, 128 S.E.2d at 423 (quoting Consumers' Brewing
Co. v. Norfolk, 101 Va. 171, 173, 43 S.E. 336, 336 (1903)).
Accordingly, we disagree with the taxpayer's argument that its
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sales activities cannot be considered as separate sales business
for the purposes of Code § 58.1-1101(A)(2).
Even so, the taxpayer construes Code § 58.1-1101(A)(2) as
"exclud[ing] all tangible personal property used in a
manufacturing business . . . from local taxation, regardless of
how indirectly related the property at issue is to the central
function of manufacturing or how distant the property is from
the manufacturing plant." (Second emphasis added.) We do not
agree with the taxpayer's argument that this sales equipment
thereby became a part of its manufacturing business as
indirectly related thereto.
In effect, the taxpayer asks us to add the bracketed words
to the following language of Code § 58.1-1101(A)(2): "[c]apital
which is personal property, tangible in fact, used [directly or
indirectly] in manufacturing . . . businesses." For much the
same reason that we refused to add the word "directly" to this
plain and unambiguous statute when urged to do so by the city in
City of Winchester v. American Woodmark Corp., 250 Va. 451, 457,
464 S.E.2d 148, 152 (1995), we refuse to add either word here.
The word and its expansive scope simply do not appear in the
statute, and we cannot change or amend a statute under the guise
of construing it. Id.; City of Martinsville v. Tultex Corp.,
238 Va. 59, 63, 381 S.E.2d 6, 8 (1989).
8
Hence, in deciding whether this sales equipment was "used
in a manufacturing business," we apply the plain meaning of
those words as used in the statute. American Woodmark, 250 Va.
at 457, 464 S.E.2d at 152. Unlike the computers and office
equipment in the American Woodmark and Tultex cases, which were
used, in whole or in part, in planning, directing or
administering the manufacturing function, the evidence in this
case indicates that the sales equipment in question was not used
in manufacturing but merely in selling the finished product.
Thus, we conclude that the evidence supports the court's holding
that this equipment could be considered as sales equipment used
in a separate sales business. We need not decide whether the
taxpayer was also engaged in a separate wholesale business
because the taxpayer has not borne his burden under Code § 58.1-
3984 of showing, which, if any, of the taxed property was used
in sales at the wholesale level.
For these reasons, the judgment will be
Affirmed.
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