Case Title: Coca-Cola Bottling Co. v. County of Botetourt

Citation: 

Docket Number: 990409

State: virginia

Court: Virginia Supreme Court

Date: 2000-03-03T00:00:00Z

Document:
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 
                     
1Code § 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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