Classification; rate of tax

# A.

Generally. The statutory definition of intangible personal property, which is segregated for state taxation, only, includes: (a) inventory, (b) personal property, tangible in fact, used in manufacturing, mining, radio or television broadcasting, dairy, dry cleaning or laundry businesses, and also cable television businesses which were added by 1983 legislation with specific property exceptions, (c) money, (d) bonds, notes and other evidences of debt, demands and claims, (e) shares of stock, (f) accounts receivable, (g) all other property which has been defined as capital pursuant to §§ 58-411 and 58-412 prior to repeal, and (h) by 1983 legislation, effective July 1, 1983, imported merchandise located in foreign trade zones in Virginia and merchandise in such zones which is destined for export. All property defined as Intangible Personal Property is exempt from local property taxation whether or not State Intangible Personal Property Tax is imposed on such property.

# B.

Definitions.

# 1.

Inventory.

a. Generally. "Inventory" means all stock on hand, including raw materials, goods in process, finished goods, and supplies of every kind for use in a business, whether located or stored on the taxpayer's premises or elsewhere in this state; except inventory of merchants (§ 58.1-3510); and subject to the limitations of § 58-412 prior to repeal; and inventory of imported merchandise or merchandise destined for ultimate export and located in a foreign trade zone.

(i) Inventory includes goods stored for distribution from a public warehouse and owned by an out-of-state manufacturer with no business location in Virginia.

(ii) Inventory of agricultural products. Inventories of agricultural products held by manufacturers in this state for manufacturing or processing are includible in taxable inventory only for the first taxable year such products become reportable as inventory if the product or products are normally required to be stored for more than one year in order to age or condition it for manufacture. This provision applies principally to tobacco manufacturers' inventories of leaf stock and strips.

b. Limitations.

(i) Inventories of businesses other than manufacturing, mining, radio or television broadcasting, dairy, dry cleaning or laundry businesses, are defined as intangible personal property only if held for resale directly or indirectly.

(a) Inventory held for resale directly. The term "inventory held for resale directly" means inventory of stock on hand for sale to customers.

(b) Inventory held for resale indirectly. The term "inventory held for resale indirectly" means inventory of materials or component parts which will become an identifiable part of the product or service to be sold or to be compensated for.

(ii) The material inventories of a building contractor are not normally held for resale directly, but such inventories become component parts of the products or services to be sold. They are, therefore, held for resale indirectly and are includible in intangible personal property as inventory.

(iii) Building materials which have been used in completed or partially completed real estate improvement are not includible in inventory since they have become a part of real estate.

(iv) The inventories of gasoline or fuel of an airline or common carrier are not held for resale directly, nor would such inventories be considered to be held for resale indirectly. Such inventories are not includible in taxable intangible personal property inventory.

(v) Inventories of all imported merchandise or merchandise destined for ultimate export are excluded from taxable inventory if located in a foreign trade zone within the Commonwealth.

# 2.

Personal property, tangible in fact.

a. The general rule is that tangible personal property is segregated for local taxation. However, to the extent that such property is statutorily defined as intangible personal property, it is not assessable for local taxation. (See § 58.1-3500 of the Code of Virginia)

b. Certain property, tangible in fact, (i.e., office furniture, fixtures and other equipment not specifically excluded) of a manufacturing, mining, radio or television broadcasting, dairy, dry cleaning or laundry business was defined as the capital of a trade or business by § 58-412 prior to repeal and is now defined as intangible personal property by § 58.1-1101 of the Code of Virginia and is exempt from local taxation.

c. Machinery and tools, motor vehicles and delivery equipment were specifically excluded from the definition of capital of a trade or business by § 58-412 prior to repeal and are accordingly excluded from the definition of intangible personal property and are assessable for local taxation.

d. The 1983 General Assembly amended § 58-405 of the Code of Virginia to specifically exclude from the definition of intangible personal property machinery and tools, trunk and feeder cables, studio equipment, tuners, converters, antennae and office furniture and equipment of cable television businesses. Such items are assessable for local taxation.

# C.

Rate of tax. The rate of tax is 30¢ on each $100 of the actual value of inventory, only. No tax is imposed on other property defined by this regulation as intangible personal property.

1. Actual value of property. The actual value of inventory for purposes of intangible personal property taxation is the cost or market value, whichever is lower, of stock on hand without reduction by reserves of any kind. Inventory values as computed for federal income tax purposes are generally acceptable for purposes of this tax and any deviation from such values must be substantiated.

# D.

Machinery and tools, motor vehicles and delivery equipment. Machinery and tools, motor vehicles and delivery equipment are subject to local taxation exclusively and are exempt from the intangible personal property tax. Trunk and feeder cables, studio equipment, tuners, converters, antennae and office furniture and equipment of cable television businesses are also exempt from the intangible personal property tax and are subject to local taxation as tangible personal property.

# 1.

This section requires that machinery and tools used in a manufacturing, mining, processing, or reprocessing, radio or television broadcasting, dairy, dry cleaning or laundry business be separately classified for local property taxation. The applicable rate must not exceed the rate imposed by the locality on other classes of tangible personal property.

# 2.

Motor vehicles and delivery equipment are subject to local taxation as tangible personal property.

a. Limitation. "Motor vehicles and delivery equipment" are vehicles designed for use upon the highways and subject to Virginia Motor Vehicle Sales and Use Tax imposed by Chapter 24 of Title 58.1 of the Code of Virginia. Mobile homes or other drawn vehicles are not within this definition unless utilized for delivery purposes. Boats and aircraft are not "motor vehicles" and are "delivery equipment" only if utilized primarily for delivery of tangible property.

b. Mobile homes or other drawn vehicles, boats and aircraft of a manufacturing, mining, radio or television broadcasting, dairy, dry cleaning or laundry business and not utilized for delivery purposes were defined as a part of the capital of a trade or business by § 58-412 prior to repeal. They are now defined as intangible personal property exempt from local taxation.