PRESENT: Hassell, C.J., Keenan, Koontz, Lemons, Agee,1 and 

Goodwyn, JJ., and Lacy, S.J. 

PALACE LAUNDRY, INC., 

D/B/A LINENS OF THE WEEK 

v. Record No. 071920 OPINION BY 

JUSTICE S. BERNARD GOODWYN 

CHESTERFIELD COUNTY September 12, 2008 

FROM THE CIRCUIT COURT OF CHESTERFIELD COUNTY 

F.G. Rockwell, III, Judge

In this appeal, we consider whether a linen rental 

company that cleans its own linens is a processing business 

for purposes of Code § 58.1-3507(A). 

In 2004, the Chesterfield County Tax Commissioner 

assessed the standard business tangible personal property tax 

on property used by Palace Laundry, Inc., d/b/a/ Linens of the 

Week (“Palace Laundry”). Palace Laundry appealed the 

determination to the State Tax Commissioner, who concluded 

that Palace Laundry was a processing business entitled to a 

reduced tax rate on tools and machinery used in its processing 

business. 

Chesterfield County filed a “Petition to Correct 

Erroneous Tax Assessment” in the Circuit Court of Chesterfield 

County. The circuit court reversed the State Tax 

 1

 Justice Agee participated in the hearing and decision of 

this case prior to his retirement from the Court on June 30, 

2008. 
2

Commissioner, ruling that Palace Laundry did not qualify as a 

processing business. Palace Laundry appeals. 

FACTS

Palace Laundry, located in Chesterfield County, owns an 

inventory of linens, which it rents to customers. During each 

periodic delivery to a customer, Palace Laundry picks up 

soiled rented linens and replaces those linens with rented 

linens that have been laundered and finished according to 

generally accepted standards of textile rental companies. In 

order to clean its linens, Palace Laundry uses two large 

washing machines and pays personal property taxes assessed on 

that equipment. Palace Laundry does not clean linens or other 

textiles that are owned by any person or entity other than 

itself. 

On September 29, 2004, Palace Laundry informed 

Chesterfield County that it was a laundry business exempt from 

property tax on all personal property other than its machinery 

and tools, and, further, as a laundry business or, 

alternatively, as a processing business, Palace Laundry should 

be taxed on its machinery and tools at the machinery and tools 

reduced tax rate. The Chesterfield County Tax Commissioner 

ruled that Palace Laundry was not a laundry business, and 

assessed Palace Laundry with the standard business tangible 
3

personal property tax on the washing machines. The 

Chesterfield County Tax Commissioner did not address whether 

Palace Laundry was a processing business. 

Palace Laundry appealed the Chesterfield County Tax 

Commissioner’s determination to the State Tax Commissioner 

(“the Commissioner”). Agreeing with the Chesterfield County 

Tax Commissioner, the Commissioner concluded that Palace 

Laundry was not a laundry business. However, the Commissioner 

ruled that Palace Laundry was a processing business under Code 

§ 58.1-3507(A) and that Palace Laundry’s machinery and tools 

used in processing were subject to a reduced tax rate. 

Chesterfield County filed a Petition to Correct Erroneous 

Tax Assessment in the Circuit Court of Chesterfield County, 

regarding the Commissioner’s ruling that Palace Laundry was a 

processing business. The matter proceeded in the circuit 

court upon stipulated facts. While recognizing that 

Chesterfield County had the burden of proving that the 

Commissioner erred by finding that Palace Laundry was a 

processing business, the circuit court, nonetheless, reversed 

the Commissioner’s ruling and held that Palace Laundry was not 

a processing business. The circuit court reasoned that Palace 

Laundry “does not render the linens more marketable or useful 

than when originally acquired by them, rather they are 
4

attempting to maintain linens for continued use by their 

customers.” 

ANALYSIS

Palace Laundry argues that the circuit court erred when 

it made the legal determination that Palace Laundry is not a 

processing business. Responding, Chesterfield County asserts 

the circuit court’s ruling was correct because Palace Laundry 

does not engage in processing and it is not a processing 

business. 

Code § 58.1-3983.1(G) provides that when a court is 

reviewing a determination of the Tax Commissioner, the party 

challenging the determination shall have the burden of proof 

to show that the determination was erroneous. The State Tax 

Commissioner’s determination is presumed valid. Department of 

Taxation v. Lucky Stores, Inc., 217 Va. 121, 127, 225 S.E.2d 

870, 874 (1976). 

 While the Commissioner’s determination is entitled to 

deference, a court reviewing such a determination is not bound 

by the Commissioner’s construction of the governing statute or 

regulation. County of Henrico v. Management Recruiters of 

Richmond, Inc., 221 Va. 1004, 1010, 277 S.E.2d 163, 166 

(1981). The court may overrule the Commissioner’s 

determination if the court finds the decision is erroneous. 
5

See id.; Code § 58.1-3983.1(G); Lucky Stores, 217 Va. at 127, 

225 S.E.2d at 874; City of Richmond v. Richmond Dairy Co., 156 

Va. 63, 72, 157 S.E. 728, 731 (1931). 

 Palace Laundry contends it is a processing business under 

this Court’s case law because it “treats linens by heat (as in 

pasteurization) when it washes, dries, and presses the linens; 

it treats linens by agitation and the addition of chemical 

detergents and mildew prohibitors during the washing cycles 

(as in making fertilizer); and it treats linens by finishing 

the linens to customer specifications and delivery (as in 

blending or sorting).” We disagree with Palace Laundry’s 

analysis. 

 Whether Palace Laundry is a processing business within 

the meaning of Code § 58.1-3507(A)2 is a mixed question of law 

 2

 Code § 58.1-3507(A): 

Machinery and tools, except idle machinery and 

tools as defined in subsection D and machinery and 

equipment used by farm wineries as defined in 

§ 4.1-100, used in a manufacturing, mining, water 

well drilling, processing or reprocessing, radio or 

television broadcasting, dairy, dry cleaning or 

laundry 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 rate 

of tax imposed by a county, city or town on such 

machinery and tools shall not exceed the rate 

imposed upon the general class of tangible personal 

property. Idle machinery and tools are taxable as 

capital under § 58.1-1101. 
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and fact. The Court reviews such issues de novo. University 

of Va. Health Servs. Found. v. Morris, 275 Va. 319, 332, 657 

S.E.2d 512, 518 (2008); Uninsured Employer’s Fund v. Gabriel, 

272 Va. 659, 662-63, 636 S.E.2d 408, 411 (2006). 

 Although “processing” has not been defined in the context 

of a tax classification, this Court has defined “processing” 

for purposes of the sales and use tax. See State Tax Comm’r 

v. Flow Research Animals, Inc., 221 Va. 817, 820, 273 S.E.2d 

811, 813 (1981). In Department of Taxation v. Orange-Madison 

Coop. Farm Serv., 220 Va. 655, 658, 261 S.E.2d 532, 534 

(1980), it was stated that processing “requires that the 

product undergo a treatment rendering the product more 

marketable or useful.” This definition was expounded upon in 

Flow Research Animals, 221 Va. at 820, 273 S.E.2d at 813, in 

which it is stated that “even under our broad interpretation 

of ‘processing’ it is contemplated that the raw material will 

be treated in some manner, whether by heat (as in 

pasteurization) or by blending (as in making feed and 

fertilizer).” 

 Our decisions in Orange-Madison Cooperative, 220 Va. at 

658, 261 S.E.2d at 534, and Flow Research Animals, 221 Va. at 

820, 273 S.E.2d at 813, dictate that to constitute a 

processing business for purposes of personal property taxation 
7

under Code § 58.1-3507(A), a company’s product must undergo a 

treatment rendering it more marketable or useful. Here, 

however, Palace Laundry does not apply any treatments that 

make the linens more marketable or useful than when the linens 

were originally purchased. Palace Laundry’s acts of cleaning 

and maintaining its linens do not constitute processing and 

Palace Laundry, therefore, is not a processing business within 

the meaning of Code § 58.1-3507(A). 

 Cleaning and maintaining its rental property does not 

transform a rental business into a processing business. 

Assuming, arguendo, that cleaning and maintaining its rental 

property constitutes processing, Palace Laundry is not in the 

processing business, because such processing is not Palace 

Laundry’s business. Palace Laundry is a linen supply business 

that rents linens to its customers; the service Palace Laundry 

provides is not the cleaning and maintaining of its linens, 

but rather the supplying of linens to its customers. The 

maintenance and cleaning of its property, which Palace Laundry 

claims to constitute “processing,” is merely an activity 

ancillary to Palace Laundry’s linen supply business. The 

circuit court did not err in finding that Palace Laundry is 

not a processing business. 
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 Accordingly, for the above reasons, we will affirm the 

judgment of the circuit court. 

Affirmed.