Rulings of the Tax Commissioner

April 12, 2023

Re:    Appeal of Final Local Determination
         Taxpayer: *****
         Locality Assessing Tax: *****
         Machinery and Tools (M&T) Tax

Dear *****:

This final state determination is issued upon the application for correction filed by you on behalf of ***** (the “Taxpayer”) with the Department of Taxation. You appeal the assessment of Machinery and Tools (M&T) tax issued to the Taxpayer by ***** (the “County”) for the 2020 and 2021 tax years. 

The M&T tax is imposed and administered by local officials. Virginia Code § 58.1-3983.1 D 1 authorizes the Department to issue determinations on taxpayer appeals of M&T tax assessments. On appeal, a local tax assessment is deemed prima facie correct, i.e., the local assessment will stand unless the taxpayer proves that it is incorrect.

The following determination is based on the facts presented to the Department summarized below. The Code of Virginia sections, regulation and public document cited are available on-line at www.tax.virginia.gov in the Laws, Rules and Decisions section of the Department’s web site.

FACTS

The Taxpayer operated a business that extracted limestone from open pit quarries in the County. It also had operations in other Virginia localities and in ***** (State A). The County audited the Taxpayer and determined that the Taxpayer was subject to the M&T tax on all of its equipment as a processor resulting in an assessment for the 2020 and 2021 tax years. 

The Taxpayer appealed the assessment to the County, contending that it was only subject to the M&T tax on machinery and tools used in its mining operations and that all other assets were exempt from local property taxation. The County issued a final local determination concluding that the Taxpayer was engaged in quarrying, not mining, and, therefore, all of its equipment not used in mining was subject to the M&T tax. The Taxpayer appealed to the Department, contending that it was a mining company, and, as such, only its machinery and tools used in mining were subject to local taxation.

ANALYSIS

Consistency with Prior Tax Years

The County contends that, because the Taxpayer did not appeal the County’s classification of the Taxpayer as a processor for prior tax years, it is procedurally barred from appealing the current assessments. Virginia Code § 58.1-3983.1 B provides:  

...Any person assessed with any local mobile property tax or local business tax as defined in this section may appeal such assessment within one year from the last day of the tax year for which such assessment is made, or within one year from the date of such assessment, whichever is later, to the commissioner of the revenue or other assessing official…

…The appeal shall be filed in good faith and sufficiently identify the taxpayer, the tax period covered by the challenged assessment, the amount in dispute, the remedy sought, each alleged error in the assessment, the grounds upon which the taxpayer relies, and any other facts relevant to the taxpayer's contention…

…The commissioner of the revenue or other assessing official shall undertake a full review of the taxpayer's claims and issue a written determination to the taxpayer setting forth the facts and arguments in support of his decision within 90 days after such appeal is filed.

As such, so long as a taxpayer appeals an assessment of a business tax within the period of limitations and files a proper appeal, the locality must address the appeal and issue a final local determination. Nothing in the statutes or regulations prohibits a taxpayer from appealing an assessment or amending a prior year return simply because the issue was not asserted in previous tax years. To the contrary, both taxpayers and localities are permitted to request or make corrections to any assessment in order to properly reflect such taxpayer’s liability so long as such requests or corrections are made with in the statute of limitations

Tangible and Intangible Personal Property

Virginia Code § 58.1 1101 classifies certain property that is tangible in fact as intangible and segregates that property for state taxation only. Intangible property consists of, in part:

…Capital which is personal property, tangible in fact, used in manufacturing (including, but not limited to, furniture, fixtures, office equipment and computer equipment used in corporate headquarters), mining, water well drilling, radio or television broadcasting, dairy, dry cleaning or laundry 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…[Emphasis added.]

As such, certain tangible personal property owned by a mining business would be classified as intangible property not subject to local property tax, but any machinery and tools used in mining would be subject to the machinery and tools (M&T) tax. See Virginia Code § 58.1-3507 A. 

The County contends that the Taxpayer was engaged in quarrying, not mining, as those words are ordinarily defined. The County further contends that the Taxpayer was not engaged in mining because the Court in Solite v. King George County, 220 Va. 661, 261 S.E.2d 535 (1980) referred to the extraction of rock from the earth and the crushing of stone as quarrying. The Court in Solite, however, merely addressed whether the crushing of stone constituted manufacturing for purposes of the BPOL tax, and not making a determination as to whether that business was engaged in mining, manufacturing, or processing.
    
The Taxpayer relies on definitions of mines and mining from the Mineral Mine Safety Act (Virginia Code § 45.2-1100 et seq.). Under Virginia Code § 45.2-1101, a mine is defined as “any underground mineral mine or surface mineral mine . . . [a] site is not considered a mine unless the mineral extracted or excavated from it is offered for sale or exchange or used for any other commercial purpose.”  A surface mineral mine is defined as “the pit and any other active or inactive area of surface extraction of minerals.” Id. A mineral is defined as “clay, stone, sand, gravel, metalliferous or nonmetalliferous ore, or any other solid material or substance of commercial value excavated in solid form from a natural deposit on or in the earth, exclusive of coal and any mineral that occurs naturally in liquid or gaseous form.” Id. 

The Taxpayer also cites Title 23 of the Virginia Administrative Code (VAC) 10-210-960 A 1, which lists quarrying in the definition of mining. Sales tax regulations, however, are not applicable to local taxes unless specified by statute. See Public Document (P.D.) 15-19 (2/11/2015).

The Code of Virginia does not contain a definition of mining for purposes of local personal property taxation. According to the American Heritage Dictionary 799 (2nd Col. Ed. 1985), mining is defined as “the process or business of extracting ore or minerals from a mine.” A mine, in turn, is an “excavation in the earth from which ore or minerals can be extracted.” Id. Mineral is defined as, among other things, “a mixture of inorganic compounds, such as hornblende or granite.” Id. Limestone is a type of rock, “chiefly [calcium carbonate] containing variable quantities of magnesium carbonate and quartz.” Id. at 732. Limestone, as a mixture of inorganic compounds similar to granite, fits the definition of mineral, and its extraction from the ground meets the definition of mining. This conclusion based on the ordinary meaning of the words is also consistent with the definition of surface mineral mine used for purposes of the Virginia Mineral Mine Safety Act cited above. 

Further, this definition is consistent with the definition of mining provided by the North American Industry Classification System (NAICS) for Sector 21, covering the Mining, Quarrying, and Oil and Gas Extraction industry. These businesses include:

[E]stablishments that extract naturally occurring mineral solids, such as coal and ores; liquid materials, such as crude petroleum; and gases, such as natural gas. The term “mining” is used in the broad sense to include quarrying, well operations, beneficiating (e.g., crushing, screening, washing, and flotation), and other preparation customarily performed at the mine site, or as part of mining activity.

A quarry, on the other hand, is an “open excavation or pit from which stone is obtained by digging, cutting, or blasting.” Id. at 1014. Quarrying is obtaining “stone from a quarry, as by cutting, digging or blasting.” Id. Although the County is correct that the Taxpayer’s activities at the County site can fairly be considered quarrying, the County failed to consider that quarrying is just a more specific term for the mining of stone.

DETERMINATION

The ordinary usage of the word mining includes the extraction of limestone from a quarry. This definition of mining is supported by NAICS industry descriptions and Virginia’s regulatory regime applicable to mine safety. In the Department’s opinion, any machinery and tools used in mining, including any machinery and tools involved in preparation activities customarily performed at a mine site, would be subject to the M&T tax.       

Property not used in such mining processes would be exempt from local property taxation. I am remanding this case to the County in order to make a determination as to what property was utilized in such operations and what property was exempt. The County must then revise the assessments issued for the 2020 and 2021 tax years and issue a new final local determination. If the Taxpayer continues to disagree with the results of that determination, it may appeal to the Department within 90 days of the final determination. 

The parties should be aware that this determination is limited to the activities conducted at the site at issue in the County. The Department issues no determination at this time regarding any operations that the Taxpayer may have conducted at other locations in Virginia, including whether any further such operations may have constituted a separate business for purposes of categorizing the Taxpayer’s tangible personal property for local property taxation. See also County of Chesterfield v. BBC Brown Boveri, 238 Va. 64, 380 S.E.2d 890 (1989) and Coca-Cola Bottling Co. of Roanoke, Inc. v. County of Botetourt, 259 Va. 559, 526 S.E.2d 746 (2000).      
   
If you have any questions regarding this determination, you may contact ***** in the Office of Tax Policy, Appeals and Rulings, at *****.

Sincerely,

Craig M. Burns
Tax Commissioner

AR/4314.B