Case Title: City of Winchester v. American Woodmark Corp.

Citation: 

Docket Number: 950013

State: virginia

Court: Virginia Supreme Court

Date: 1995-11-03T00:00:00Z

Document:
Present:  All the Justices 
 
CITY OF WINCHESTER 
 
OPINION BY JUSTICE LEROY R. HASSELL, SR. 
v.   Record No. 950013         November 3, 1995 
 
AMERICAN WOODMARK CORPORATION 
 
 
FROM THE CIRCUIT COURT OF THE CITY OF WINCHESTER 
 
John E. Wetsel, Jr., Judge 
 
 
I. 
 
In this appeal, we consider whether Code §§ 58.1-1100 
and -1101 authorize a city to tax certain personal property 
owned by a manufacturer. 
 
II. 
 
Relying upon the provisions of Code §§ 58.1-1100 and 
-1101(A), American Woodmark Corporation filed a pleading 
referred to as an "Application to Correct Erroneous 
Assessments of Local Taxes and Claim for Tortious Violation 
of Constitutional Rights" against the City of Winchester.  
American Woodmark sought a refund of $464,637 for taxes it 
had paid during the years 1989 through 1992. 
 
Code § 58.1-1100 states in pertinent part: 
 
 
Intangible personal property, including 
capital of a trade or business of any person, firm 
or corporation, . . . is hereby segregated for 
state taxation only.   
 
Code § 58.1-1101(A) states in pertinent part: 
 
 
A.  The subjects of taxation classified by 
this section are hereby defined as intangible 
personal property [taxable by the state]: 
 
 
. . . . 
 
 
 
2.  Capital which is personal property, 
tangible in fact, used in manufacturing . . . 
businesses.  Machinery and tools, motor vehicles 
and delivery equipment of such businesses shall 
not be defined as intangible personal property for 
purposes of this chapter and shall be taxed 
locally as tangible personal property according to 
the applicable provisions of law relative to such 
property.    
 
 
American Woodmark alleged that its personal property is 
used in its manufacturing business and, therefore, is 
classified as intangible personal property under the 
provisions of Code § 58.1-1101(A)(2), not subject to local 
taxation under the provisions of Code § 58.1-3500.  In 
response, the City asserted that American Woodmark's 
furniture, fixtures, office equipment, and computer 
equipment located in Winchester, are not used directly in a 
manufacturing facility in Winchester and, therefore, cannot 
be classified as intangible personal property.  Accordingly, 
the City claimed that such property is subject to local 
taxation.   
 
The trial court held that the personal property in 
question was classified as intangible personal property 
pursuant to Code §§ 58.1-1100 and -1101 and, therefore, was 
not subject to local taxation.  The trial court entered a 
judgment including postjudgment interest in favor of 
American Woodmark.  We awarded the City an appeal. 
 
III. 
 
The litigants have stipulated the relevant facts.  
American Woodmark, a Virginia corporation, maintains its 
corporate headquarters in Winchester.  American Woodmark's 
executive officers, accounting personnel, credit management 
personnel, computer systems managers and operators, senior 
sales marketing personnel, operations and customer service 
personnel, and senior manufacturing officers work at the 
headquarters.  "Functions performed at the corporate 
headquarters . . . include establishing and monitoring 
overall corporate direction and strategy, overall management 
of American Woodmark's business, consolidated reporting of 
its financial information, approving extensions of credit to 
prospective customers, selling and marketing of cabinets and 
vanities produced by other American Woodmark facilities, 
invoicing sales, collecting accounts receivable, paying 
purchase invoices, maintaining a company wide computer 
network, and fulfilling the accounting, tax and regulatory 
compliance functions required to manage and operate the 
company's business activities."   
 
American Woodmark purchases green lumber, other raw 
materials, and component parts and uses these items to 
manufacture kitchen cabinets and bathroom vanities at 
certain manufacturing facilities located in several states. 
 American Woodmark does not manufacture any kitchen cabinets 
or bathroom vanities either at its corporate headquarters or 
at any other location in Winchester.   
 
American Woodmark has distribution facilities, 
warehouses, service centers, and sales offices throughout 
the United States.  These facilities are part of "a computer 
network which is controlled by and operates through a large 
mainframe computer located at American Woodmark's corporate 
headquarters in . . . Winchester. . . .  The computer system 
is used to provide data and information to the appropriate 
company personnel to enable . . . them to make informed 
decisions and to manage their areas of responsibility."  
This computer system is an integral part of American 
Woodmark's corporate operations and is used for such vital 
purposes as: the acquisition of raw materials and 
components; distribution and sales of cabinets and vanities; 
inventory control; and billing and accounts receivables.  
The computer system is not directly used in product design 
or research and development.   
 
IV. 
 
A. 
 
The City argues that American Woodmark's personal 
property located at its corporate office is subject to local 
taxation because American Woodmark's headquarters is not a 
manufacturing business under the provisions of Code § 58.1-
1101(A), and the personal property in issue is not "used in" 
that business.  Alternatively, the City contends that if the 
property is used in a manufacturing business within the 
City, it is a part of the "machinery and tools of" that 
manufacturing business and thus taxable under the provisions 
of Code § 58.1-1101(A)(2).   
 
To buttress its position, the City asserts that the 
intangible property located in American Woodmark's corporate 
headquarters cannot be deemed capital used in a 
manufacturing business because American Woodmark does not 
manufacture any products within Winchester's geographical 
boundaries.  The City further argues that Code §§ 58.1-1100 
and -1101 are tax exemptions and must be strictly construed 
against the taxpayer. 
 
American Woodmark contends that it is a manufacturing 
business within the plain meaning of Code §§ 58.1-1100 and  
-1101 and that the furniture, fixtures, office equipment, 
and computer equipment in its corporate headquarters are 
"used in" its manufacturing business even though no products 
are specifically manufactured in Winchester.  We agree with 
American Woodmark. 
 
We first determine whether Code §§ 58.1-1100 and       
-1101(A)(2) are tax exemptions, construed against American 
Woodmark, or limitations on the City's power to tax personal 
property, construed against the City.  In another context, 
we have broadly defined "exemption" as "[f]reedom from a 
general duty or service; immunity from a general burden, 
tax, or charge."  National R.R. Passenger Corp. v. Catlett 
Volunteer Fire Co., Inc., 241 Va. 402, 410, 404 S.E.2d 216, 
220 (1991) (quoting Black's Law Dictionary at 571).  Another 
authority defines "exemption" as "freedom from any charge or 
obligation to which others are subject."  Webster's Third 
New International Dictionary 795 (1986 ed.). 
 
Code §§ 58.1-1100 and -1101(A)(2) do not provide 
freedom from the City's personal property tax to which other 
entities are subject, but rather classify certain personal 
property, tangible in fact, as intangible personal property 
and segregate that property for state taxation only.  See 
City of Roanoke v. Michael's Bakery Corp., 180 Va. 132, 143-
54, 21 S.E.2d 788, 793-98 (1942) (discussing history of 
segregation and classification of personal property for 
taxation).  These statutes also prohibit the City from 
assessing a personal property tax upon property within this 
classification.   
 
And, it is well established in Virginia that a 
municipal corporation, such as the City, can only derive its 
taxing power through positive grants of authority from the 
General Assembly.  Whiting v. Town of West Point, 89 Va. 
741, 743, 17 S.E. 1, 2 (1893).  Therefore, we hold that Code 
§§ 58.1-1100 and -1101(A)(2) reflect the General Assembly's 
decision not to grant a specific taxing power to the City, 
and these statutes must be treated as general tax statutes. 
 Thus, the following principle is applicable here: 
 
[S]tatutes imposing taxes are to be construed most 
strongly against the government, and in favor of 
the citizen, and are not to be extended by 
implication beyond the clear import of the 
language used.  Whenever there is a just doubt, 
'that doubt should absolve the taxpayer from his 
burden.' 
 
Commonwealth Natural Resources, Inc. v. Commonwealth, 219 
Va. 529, 537-38, 248 S.E.2d 791, 796 (1978); accord, 
Commonwealth v. P. Lorillard Co., 129 Va. 74, 81-82, 105 
S.E. 683, 685 (1921).   
 
We also observe that when we interpret unambiguous 
statutes, such as Code §§ 58.1-1100 and -1101(A)(2), we 
apply the plain meaning rule. 
 
 
While in the construction of statutes the 
constant endeavor of the courts is to ascertain 
and give effect to the intention of the 
legislature, that intention must be gathered from 
the words used, unless a literal construction 
would involve a manifest absurdity.  Where the 
legislature has used words of a plain and definite 
import the courts cannot put upon them a 
construction which amounts to holding the 
legislature did not mean what it has actually 
expressed. 
 
City of Virginia Beach v. ESG Enterprises, Inc., 243 Va. 
149, 152-53, 413 S.E.2d 642, 644 (1992). 
 
Applying these principles, we hold that American 
Woodmark's personal property in question constitutes capital 
used in manufacturing businesses that is not subject to 
taxation by the City.  We find no language in Code §§ 58.1-
1100 or -1101(A)(2) which requires that capital be used in a 
manufacturing facility physically located within the 
geographical boundaries of Winchester.  Accordingly, we 
decline the City's invitation to construe Code § 58.1-
1101(A)(2) as requiring that a manufacturer maintain a 
manufacturing facility within the City's geographical 
boundaries or that the manufacturer's capital, which is 
personal property, tangible in fact, be used "directly" in 
the manufacturing process.  These limitations simply do not 
appear in Code § 58.1-1101(A)(2).  And, as we recently said, 
"[w]hen the General Assembly 'has spoken plainly' on a 
subject, we must not 'change or amend its enactments under 
the guise of construing them.'"  City of Martinsville v. 
Tultex Corp., 238 Va. 59, 63, 381 S.E.2d 6, 8 (1989). 
 
B. 
 
Alternatively, the City argues that even if "American 
Woodmark's personal property is 'used in' a manufacturing 
business, its computer system and office equipment are 
'machinery and tools . . . of such business' and not exempt 
from personal property tax."  The City relies upon the 
following portion of Code § 58.1-1101(A)(2) which states 
that "[m]achinery and tools . . . of [manufacturing] 
businesses shall not be defined as intangible personal 
property for purposes of this chapter and shall be taxed 
locally as tangible personal property according to the 
applicable provisions of law relative to such property."  
American Woodmark argues, and the trial court held, that 
American Woodmark's computer system and office equipment in 
its headquarters are not "machinery and tools" within the 
meaning of Code § 58.1-1101(A)(2).   
 
Since 1950, Virginia's tax commissioner has opined that 
the phrase "machinery and tools" contained in Code § 58.1-
1101(A)(2) and its precursors means machinery used in the 
actual process of manufacturing.  See Commonwealth v. 
Carter, 198 Va. 141, 146-47, 92 S.E.2d 369, 373 (1956) 
(construction of taxation statute by tax commissioner 
charged with its enforcement is entitled to great weight); 
accord, Commonwealth v. Wellmore Coal Corp., 228 Va. 149, 
154, 320 S.E.2d 509, 511 (1984).  Likewise, the Attorney 
General has consistently opined that "'machinery and tools 
used in a particular manufacturing business' are the 
machinery and tools which are necessary in the particular 
manufacturing business and which are used in connection with 
the operation of machinery which is actually and directly 
used in the manufacturing process."  1985-1986 Att'y Gen. 
Ann. Rep. 316 at 317; see also 1987-1988 Att'y Gen. Ann. 
Rep. 590.   
 
Even though the General Assembly has been aware of the 
Attorney General's interpretation of the phrase "machinery 
and tools" as used in Code § 58.1-1101(A)(2), the General 
Assembly has taken no action to modify that definition.  
And, we have repeatedly held that the General Assembly is 
presumed to have knowledge of the Attorney General's 
interpretation of statutes, and the General Assembly's 
failure to make corrective amendments evinces legislative 
acquiescence in the Attorney General's interpretation.  
Browning-Ferris, Inc. v. Commonwealth, 225 Va. 157, 161-62, 
300 S.E.2d 603, 605-06 (1983); Richard L. Deal and Assoc. v. 
Commonwealth, 224 Va. 618, 622, 299 S.E.2d 346, 348 (1983); 
Albemarle County v. Marshall, 215 Va. 756, 762, 214 S.E.2d 
146, 150 (1975).  Therefore, we hold that American 
Woodmark's furniture, fixtures, office equipment, and 
computer equipment are not "machinery and tools" within the 
meaning of Code § 58.1-1101(A)(2) because these items are 
not used in connection with the operation of machinery which 
is actually and directly used in the manufacturing process. 
  
V. 
 
The City argues that the trial court erred by awarding 
 postjudgment interest against it.  The City contends that 
judgment interest may only be awarded on a refund of local 
taxes if provision for the payment of interest is contained 
in an ordinance adopted by the affected local government in 
accordance with Code § 58.1-3991.  The City observes that it 
has adopted no such ordinance.  American Woodmark argues 
that it is entitled to judgment interest as permitted by 
Code § 8.01-382.  We agree with the City.   
 
Code § 58.1-3987 states in relevant part: 
 
 
If the court is satisfied from the evidence 
that the assessment is erroneous . . . the court 
may order that the assessment be corrected . . . . 
If the tax has been paid, the court shall order 
that it be refunded to the taxpayer, with interest 
if authorized pursuant to § 58.1-3991.   
 
Code § 58.1-3991 states: 
 
 
The governing body of any county, city or 
town may provide by ordinance that all erroneously 
assessed taxes refunded under the provisions of 
this article be repaid with interest at a rate not 
to exceed the rate imposed by such locality for 
delinquent taxes.  Such interest shall run from 
the date such taxes were required to be paid or 
were paid, whichever is later. 
 
Code § 8.01-382 states in relevant part: 
 
 
Except as otherwise provided in § 8.3-122, in 
any action at law or suit in equity, . . . the 
judgment or decree of the court, may provide for 
interest on any principal sum awarded, or any part 
thereof, and fix the period at which the interest 
shall commence.  The judgment or decree entered 
shall provide for such interest until such 
principal sum be paid.  If a judgment or decree be 
rendered which does not provide for interest, the 
judgment or decree awarded shall bear interest 
from its date of entry, at the rate as provided in 
§ 6.1-330.54, and judgment or decree entered 
accordingly. 
 
 
Contrary to American Woodmark's assertion, we must 
apply Code §§ 58.1-3987 and -3991 in this appeal because 
these are statutes of specific application which take 
precedence over Code § 8.01-382, a statute of general 
application.  "[W]hen one statute speaks to a subject in a 
general way and another deals with a part of the same 
subject in a more specific manner, . . . where they 
conflict, the latter prevails."  Dodson v. Potomac Mack 
Sales & Service, 241 Va. 89, 94-95, 400 S.E.2d 178, 181 
(1991) (quoting Virginia Nat'l Bank v. Harris, 220 Va. 336, 
340, 257 S.E.2d 867, 870 (1979)).  The plain and unambiguous 
language in Code § 58.1-3987 permits a trial court to order 
interest only if such interest is authorized pursuant to 
Code § 58.1-3991.  The City, however, did not enact an 
ordinance pursuant to Code § 58.1-3991 which would permit an 
award of interest against it.  Therefore, the trial court 
erred by awarding interest on the "assessed taxes refunded" 
against the City.   
 
 
VI. 
 
In view of our disposition of this appeal, we need not 
consider the City's remaining arguments.  Additionally, we 
do not consider the City's constitutional arguments because 
they are not the subject of an assignment of error.  Rule 
5:17.  Accordingly, the judgment of the trial court will be 
affirmed in part, reversed in part, and we will enter final 
judgment here. 
 
Affirmed in part,
 
reversed in part,
 
and final judgment.