Tax Type
Local Taxes
Property Tax
Description
Leased Computer Equipment
Topic
Local Power to Tax
Local Taxes Discussion
Property Subject to Tax
Date Issued
02-06-1985
[Opinion - Virginia Attorney General: 1985 at 403]
REQUEST BY: Honorable J. Ronnie Minter Commissioner of the Revenue for the City of Martinsville
OPINION BY: Gerald L. Baliles, Attorney General
OPINION:
You have asked whether computer equipment leased to a local manufacturer is to be taxed by the City of Martinsville as tangible personal property, or whether it is to be taxed as capital defined as intangible personal property not subject to local taxation. The manufacturer leased the computer equipment during tax year 1984 from a corporation located in California. It is your position that the California corporation, the owner-lessor, is the party liable for local tangible personal property tax on this equipment. I concur.
For purposes of taxation, the character of the use of tangible personal property by a person, other than the owner of the property, is a factor that may only be considered when there is a specific statute authorizing such consideration. For example, tangible personal property owned by the federal government is generally exempt from state or local taxation. See 1969-1970 Report of the Attorney General at 293. § 58-831.2 of the Code of Virginia,1 however, authorizes the taxation of tangible personal property owned by the federal government when it is being used by a private, profit-making business.2 In an Opinion to the Honorable Sam T. Barfield, Commissioner of the Revenue for the City of Norfolk, dated July 24, 1984, I concluded that the character of the use of tangible personal property leased by a church is not a factor in determining the property's tax status if the indicia of ownership under the leasing agreement place actual ownership in the nonexempt lessor. Therefore, unless there is specific statutory authority to do so, the character of the use of tangible personal property by a person other than the owner is not a factor to be considered when establishing the proper classification of the property or its exempt or nonexempt status.3
The computer equipment in question is owned by a corporation which leases it to the manufacturing business. The lessor corporation, therefore, is in the rental business, not in the manufacturing business. Cf. 1982-1983 Report of the Attorney General at 364 (holding that an automobile manufacturer which rented vehicles to certain of its employees did not qualify as a business engaged in the daily rental of passenger cars). Thus, the computer equipment is not being "used in manufacturing" by its owner, and is not classified as intangible personal property under § 58-405. Such equipment is properly assessed as tangible personal property subject to local taxation. This conclusion is in accord with the long-standing administrative interpretation, as enunciated by the Honorable C. H. Morrissett, State Tax Commissioner, by letter to Mr. Frank A. Abernathy, Jr., dated December 12, 1969 (holding that the inventory of a rental business is taxable as tangible personal property and not as capital of the business).
Under § 58-20, tangible personal property is taxable to its owner. This is true, even where the property is leased to another. See 1983-1984 Report of the Attorney General at 400; but see § 58-831.2. Accordingly, it is my opinion that the computer equipment is tangible personal property subject to local taxation and is taxed to its owner.
1 Each of the Code sections referred to by you and in this Opinion is the section in effect for tax year 1984 as it appeared prior to recodification in Title 58.1, effective January 1, 1985. The recodification made no substantive changes to these sections.
2 See 1978-1979 Report of the Attorney General at 285, which held that a holder of a leasehold interest in federally owned tangible personal property shall be taxed as if the lessee of such interest were the owner of the property when the property is used by the lessee in a profit-making business.
3 Contra 1976-1977 Report of the Attorney General at 274, which held that the use to which machinery and tools are put by a lessee determines whether they are taxable as machinery and tools, as tangible personal property, or as capital. I disagree with that conclusion to the extent that it differs from the conclusion expressed herein.
Attorney General's Opinion