Tax Type
Property Tax
Description
Generating and cogenerating equipment used for energy conservation; Constitutional provisions
Topic
Property Subject to Tax
Date Issued
03-17-1995
You ask whether a 1992 amendment to § 58.1-3506(A)(7) of the Code of Virginia,1 which added the second sentence in subdivision A 7 establishing certain equipment used in the cogeneration of steam or electricity as a separate class of tangible personal property for local tax purposes,2 exceeded the General Assembly's constitutional authority.
You note that Article X, § 1 of the Constitution of Virginia (1971) establishes a general rule that all property shall be taxed, except as otherwise provided in the Constitution. Section 1 further gives the General Assembly the authority to "define and classify' subjects of taxation. You further note that Article X, § 6(a) establishes certain classes of property that are exempt from all taxation. Subsections (b) through (i) of Article X, § 6 empower the General Assembly to exempt or partially exempt certain other classes of property. Subsection (i) was added by a constitutional amendment ratified by the voters at the general election held November 4, 1980. That amendment states:
- The General Assembly may by general law allow the governing body of any county, city, or town to exempt or partially exempt from taxation any generating equipment installed after December thirty-one, nineteen hundred seventy-four, for the purpose of converting from oil or natural gas to coal or to wood, wood bark, wood residue, or to any other alternate energy source for manufacturing, and any co-generation equipment installed since such date for use in manufacturing.3
The general requirement in Article X, § 1 that all property be taxed, when read together with the rule of strict construction of exemptions in Article X, § 6(f), makes it clear that the General Assembly may not expand the tax exemptions authorized in the Constitution, except in those instances when the constitutional language specifically provides for such expansion. The 1992 amendment to § 58.1-3506(A)(7) changes the definition of generating and cogeneration equipment that is declared to be a separate classification of tangible personal property for purposes of local taxation, to include "such equipment purchased by firms engaged in the business of generating electricity or steam, or both.'4 That amendment to § 58.1-3506(A)(7) does not, however, purport to expand the permitted scope of the cogeneration property tax exemption in Article X, § 6(i).5
Designation of a particular type of personal property as a separate classification for tax purposes is not equivalent to exempting that type of property from taxation altogether.6 Article X, § 1 expressly reserves to the General Assembly the power to define and classify taxable subjects. The Supreme Court of Virginia has upheld the exercise of this power.7 Once placed in a separate statutory classification, tangible personal property of a particular type may be taxed at a different rate from other classes of personal property, without violating the constitutional requirement for uniformity in property taxation.8 Under the classification scheme the General Assembly has adopted in § 58.1-3506, the generating equipment and cogeneration equipment classified under § 58.1-3506(A)(7) must be taxed by a locality at a rate that does not exceed that locality's tax rate applicable to machinery and tools. This classification scheme does not authorize the locality to exempt generation and cogeneration equipment purchased by firms engaged in the business of generating electricity or steam from taxation altogether.
Therefore, it is my opinion that the 1992 amendment to § 58.1-3506(A)(7), which added the second sentence to subdivision A 7 establishing certain equipment used in the cogeneration of steam or electricity as a separate class of tangible personal property for local tax purposes, is within the power of the General Assembly to classify property for local taxation purposes.9
1 Section 58.1-3506 provides:
"A. The items of property set forth below are each declared to be a separate class of property and shall constitute a classification for local taxation separate from other classifications of tangible personal property provided in [Chapter 35 of Title 58.1]:
* * *
"7. Generating equipment purchased after December 31, 1974, for the purpose of changing the energy source of a manufacturing plant from oil or natural gas to coal, wood, wood bark, wood residue, or any other alternative energy source for use in manufacturing and any cogeneration equipment purchased to achieve more efficient use of any energy source. Such generating equipment and cogeneration equipment shall include, without limitation, such equipment purchased by firms engaged in the business of generating electricity or steam, or both[.]
* * *
"B. The governing body of any county, city or town may levy a tax on the property enumerated in subsection A at different rates from the tax levied on other tangible personal property. The rates of tax and the rates of assessment shall ... (ii) for purposes of subdivision[] ... A 7 ... not exceed that applicable to machinery and tools[.]'
2 See Ch. 680, 1992 Va. Acts Reg. Sess. 1000, 1001.
3 To implement Article X, § 6(i), the General Assembly has adopted § 58.1-3662, which states:
"Generating equipment installed after December 31, 1974, for the purpose of converting from oil or natural gas to coal or to wood, wood bark, wood residue, or to any other alternate energy source for manufacturing, and any cogenerating equipment installed since such date for use in manufacturing, are hereby declared to be a separate class of property and shall constitute a classification for local taxation separate from other classifications of tangible personal property. The governing body of any county, city or town may, by ordinance, exempt or partially exempt such property from local taxation, and such ordinance shall become effective on January 1 of the year following the year of adoption.'
4 The 1992 amendment to § 58.1-3506(A)(7) was proposed in response to a 1991 opinion of the Attorney General concerning the proper local tax treatment of a firm dealing exclusively in cogeneration (the combined production of electrical power and thermal energy). See 1991 Op. Va. Att'y Gen. 296. Because § 58.1-3506(A)(7) previously referred to generating equipment to change the energy source of a manufacturing plant to an alternative energy source for use in manufacturing, the 1992 amendment has the effect of including the generation of electricity or steam within the term "manufacturing,' for purposes of this particular statutory classification. In so doing, the 1992 amendment to § 58.1-3506(A)(7) overrides the conclusion of the 1991 opinion to the Hopewell Commissioner of the Revenue. The further addition of the second enacting clause in the 1992 act, stating "[t]hat this act is declaratory of existing law,' indicates that the General Assembly did not consider that opinion to correctly reflect its statutory intent when it originally adopted § 58.1-3506(A)(7). 1992 Va. Acts, supra note 2, at 1002.
5 The separate classification of cogeneration property now found in § 58.1-3506(A)(7) predates the 1980 adoption of Article X, § 6(i). See former § 58-831.01.
6 See generally Gordon M. Cooley et al., Note, Property Taxation in Virginia, 11 U. RICH. LAW REV. 589, 595-97 (1977).
7 See Cross v. City of Newport News, 217 Va. 202, 228 S.E.2d 113 (1976).
8 See id. at 206, 228 S.E.2d at 116.
9 The term "classification' "is a word of art [as used in the Virginia tax structure] with special import, connoting a division into separate classes.' Id. at 204, 228 S.E.2d at 115. It is not used in the definitional sense.
Attorney General's Opinion