Tax Type
Property Tax
Description
Constitutional authorization of property exemptions; Proposed exemption for vehicles constitutional
Topic
Exemptions
Property Subject to Tax
Date Issued
09-15-1997
I have today issued an opinion in response to a request by Delegate Callahan. Several other members of the General Assembly have sent similar requests. Each of the requests relates to the authority of the General Assembly to grant citizens relief from certain personal property taxes. A memorandum of law prepared by A.E. Dick Howard and two other lawyers has received significant publicity in the present election campaign and has caused concern that several statutes in the tax code might be unconstitutional. As you will see in my opinion to Delegate Callahan, there is no cause for such concern. The Howard memo reaches the wrong conclusion. The General Assembly has the clear power to enact legislation to grant Virginia citizens tax relief. Rather than issuing separate opinions to each of you, I am treating my opinion to Delegate Callahan a copy of which is attached as responsive to your requests.
The salient points in my opinion may be summarized as follows:
- The Constitution already grants the General Assembly the authority to enact a tax relief measure like that proposed by Mr. Gilmore. No Constitutional policy would be advanced and a basic tenet of representative democracy would be undermined by denying to the people and their elected officials the prerogative to free families and individuals from the burdens imposed by personal property taxes levied on their personally owned cars, trucks and motorcycles.
- Article X of the Constitution expressly authorizes the General Assembly to declare property to be "household goods' and thus exempt from taxation. Just this year, the General Assembly, by a unanimous vote in both houses, enacted legislation declaring certain motor vehicles to be "household goods' and subject to exemption.
- The General Assembly has the authority to define personal motor vehicles valued at $20,000 or less to be exempt from taxation as "household goods.' In today's society, personal motor vehicles are used pervasively in connection with family or "household' activities, and it is difficult to imagine an item of personal property that is more essential to the maintenance of a fiscally solvent household than the motor vehicles that supply the family's means of transportation to places of employment.
- The General Assembly has exercised this authority many times classifying various items as households goods and personal effects, including diamonds, bicycles, weapons of all kinds, and antique vehicles not used for general transportation, to name just a few. The law relating to antique vehicles was enacted this past session.
I am unable to accord significant weight to the contrary conclusion set forth in the memorandum submitted by Professor Howard and his colleagues for the following reasons:
- a. The memorandum inexplicably ignores pivotal constitutional issues, statutory provisions, and legislative precedent.
b. The memorandum is inconsistent with Professor Howard's own Commentaries on the Constitution of Virginia in significant respects which have direct bearing on the issue.
c. In contrast to his contemporaneous Commentaries upon the Virginia Constitution as revised in 1971, Professor Howard's memorandum was prepared in his capacity as co-counsel to a specific client who publicly opposed the particular tax relief proposed.
The fundamental principles that underlie Article X of the Constitution of Virginia relate to fairness and equity to all taxpayers who fall within the same legislatively defined class. The Gilmore proposal treats all similarly situated taxpayers the same, and thus comports fully with the constitutional imperative of fairness and equity.
I hope this information responds fully to your request.
The Honorable Vincent F. Callahan, Jr.
Member, House of Delegates
My dear Delegate Callahan:
You request that I review a plan to provide relief from the personal property tax ("tax relief plan' or "plan') on the first $20,000 of value on personally owned cars, trucks and motorcycles. You also inquire whether the General Assembly has the power to enact such a plan under the Constitution of Virginia (1971). You express concern that a memorandum of law by Professor A.E. Dick Howard and others, if correct, casts doubt on several long-standing statutes in Virginia's tax code. While my analysis of the plan must be general in nature, it is my opinion that the General Assembly has the power to enact such tax relief and that the current statutory scheme of personal property tax exemptions is constitutional.
The general concept stated in the plan is to develop legislation that will effectively eliminate the personal property tax on personally owned cars, trucks and motorcycles ("vehicles') with a value of less than $20,000. The plan observes that families must have one or more cars to take their children to school or baseball practice; the elderly must have a reliable car to get to the doctor's office or buy groceries; and those who work, especially the poor who are moving from welfare to economic independence, must have a car to drive to a job. Therefore, the tax relief plan concludes that cars and trucks have become a necessity of modern living for every household in the Commonwealth.
As a general matter, all legislative power is vested in the General Assembly1 and "[t]he power to tax is a legislative power which the General Assembly inherently enjoys.'2 Potentially, there may be more than one source of power under the Constitution of Virginia which would enable the General Assembly to enact legislation implementing the goals of the tax relief plan. Based on the statements in the plan regarding the essential nature of vehicles to every household today, however, I will assume for purposes of this opinion that the General Assembly would base legislation on a finding that personally owned vehicles under $20,000 in value are "used by an individual or by a family or household incident to maintaining an abode,'3 and would enact legislation exercising its power to classify under Article X, § 6(e) property as "exempt or partially exempt . . . from taxation.'
Article X, § 1 establishes the general rule that, except as otherwise provided in the Constitution, "[all] property . . . shall be taxed,' and "[a]ll taxes . . . shall be uniform upon the same class of subjects.' Courts have long recognized, however, that the mandate of Article X, § 1 is "not self-executing, and legislation is necessary to carry it into effect. One must be able to put his finger upon the letter of authority "4
Section 1 also gives the General Assembly the authority to "define and classify' subjects of taxation. "Classification,' as used in the Virginia tax structure, "is a word of art with special import, connoting a division into separate classes.'5 The power allows the General Assembly to prescribe specific tax treatments for particular classes of property within the uniformity requirement of the Constitution and thus provides flexibility in the overall tax structure.
The Supreme Court of Virginia describes as broad and unquestioned the General Assembly's power to specify classes of tangible personal property:
The power of a state to make reasonable and natural classifications for purposes of taxation . . . is clear and not questioned. Such classifications may be made with respect to the subjects of taxation generally, the kinds of property to be taxed, the rates to be levied or the amounts to be raised, OR THE METHODS OF ASSESSMENT, VALUATION, AND COLLECTION.6
The General Assembly has exercised the power of classification to authorize lower rates of taxation on certain classes of property7 or to authorize exemptions from taxation for certain items of property within a class.8 The General Assembly also has used different criteria to establish classifications of motor vehicles and other property, such as vehicle weight,9 seating capacity,10 vehicle ownership by certain groups,11 and assessed value.12
It is through its power to classify property for tax purposes that the General Assembly has been able to adapt the administration of the tax system to changing circumstances and to accomplish various policy objectives. In fact, the statutory system of personal property taxation is essentially grounded in the General Assembly's power to classify property. In light of this statutory scheme, it would be fully consistent for the General Assembly to establish a class of tangible personal property containing personally owned vehicles or to establish separate classes of such vehicles, based on a $20,000 valuation threshold, and to specify the type of tax treatment to be given the property.
The General Assembly's power to CLASSIFY subjects of taxation operates in conjunction with its power to DEFINE the subjects. The Constitution does not itself define "tangible personal property' or specific classes of such property, but specifically places this power with the General assembly.13 The power of the General Assembly to define and classify tangible personal property is very broad. For example, the Supreme Court of Virginia has upheld the legislature's authority to define certain property, tangible in fact, as intangible personal property and to exclude the property from local taxation.14 Thus, the General Assembly has defined as tax- exempt intangible property such tangible items as certain "inventory';15 "furniture, fixtures, office equipment and computer equipment used in corporate headquarters,' and other "[c]apital which is personal property, tangible in fact, used in manufacturing, . . . mining, radio or television broadcasting, dairy, dry cleaning or laundry businesses';16 or "cable television businesses';17 and "[a]ll imported and exported foreign merchandise or domestic merchandise scheduled for export while in inventory located in a foreign trade zone within the Commonwealth.'18
In addition to the legislature's general authority granted in Article X, § 1 to define subjects of taxation, the General Assembly has the specific authority under Article X, § 6(e) to "define as a separate subject of taxation household goods [and] personal effects . . . [and] by general law [to] directly exempt or partially exempt such property from taxation.'19 The General Assembly has exercised this authority in § 58.1-3504(A) of the Code of Virginia, which defines and classifies various items of property as "household goods and personal effects,' including "[b]icycles';20 "[h]ousehold and kitchen furniture, . . . gold and silver plates, . . . automatic refrigerating machinery of any type, weapons of all kinds';21 "musical instruments';22 "paintings, [statues] . . . and works of art';23 "[d]iamonds, precious stones and all precious metals used as ornaments or jewelry';24 sporting equipment;25 and "[a]ll other tangible personal property used by an individual or a family or household incident to maintaining an abode.'26 While § 58.1-3504 permits localities to exempt the classes of property from taxation, Article X, § 6(e) clearly grants the General Assembly the authority to directly exempt the property. Thus, it is within the power of the Assembly to "decide[I] whether there shall be such exemptions and, if so, whether the system will be one of local option.'27
The Constitution contains no definition of "household goods' or "personal effects' but, rather, under Article X, § 6(e), expressly grants the General Assembly the power to "define' such property. The General Assembly has recently acted to define and classify certain automobiles as household goods which may be exempted from taxation. At the 1997 Session, the General Assembly amended § 58.1-3504(A)(8), defining and classifying "[a]ntique motor vehicles . . . which may not be used for general transportation purposes' as household goods.28 In so doing, the General Assembly recognized a class of motor vehicles as "tangible personal property used by an individual or a family or household incident to maintaining an abode.'29
The plan describes personally owned vehicles valued at less than $20,000 as a necessity of life, as items essential to maintenance of the household=a household vehicle that is comparable to "other tangible personal property used by an individual or a family or household incident to maintaining an abode.'30 It is entirely conceivable that the General Assembly could make comparable findings. Indeed, the rationale for exempting such motor vehicles as household goods owned incident to maintaining an abode would be much stronger than the rationale for exempting antique motor vehicles which are not used for general transportation purposes.31
It is my opinion that Article X, § 6(e) provides a basis for the General Assembly to define personally owned motor vehicles as within the classification of "household goods and personal effects' in § 58.1-3504(A) and to exempt or partially exempt such property from taxation,32 and that the exemptions established by the General Assembly in §§ 58.1-1101 and 58.1- 3504 are valid under Article X of the Constitution.33
In conclusion, Article X, § 1 expressly reserves to the General Assembly the power to define and classify taxable subjects, and Article X, § 6(e) further empowers the General Assembly to define, classify and partially or fully exempt household goods from taxation. Within the last seven months, the General Assembly, through the unanimous vote of both houses, has exercised its power to define and classify certain motor vehicles as household goods. The courts have confirmed that the power of the General Assembly to classify and define objects as tax exempt is broad.34 Accordingly, it is my opinion that the General Assembly's power to classify and define subjects of taxation, in conjunction with its power to define and exempt from taxation household goods, provides a constitutional basis for accomplishing your goal.
With kindest regards, I am
Very truly yours,
Richard Cullen
Attorney General
1 See VA. CONST. art IV, § 1.
2 2 A.E. DICK HOWARD, COMMENTARIES ON THE CONSTITUTION OF VIRGINIA 1036 (1974).
3 VA. CODE ANN. § 58.1-3504(A) (Michie 1997).
4 Commonwealth v. Stringfellow, 173 Va. 284, 291, 4 S.E.2d 357, 360 (1939).
5 Cross v. City of Newport News, 217 Va. 202, 204, 228 S.E.2d 113, 115 (1976).
6 City of Richmond v. Commonwealth, 188 Va. 600, 605, 50 S.E.2d 654, 656 (1948).
7 See § 58.1-3506.
8 See §§ 58.1-3504, 58.1-3505.
9 Section 58.1-3506(A)(1) (boats or watercraft weighing five or more tons); § 58.1-3506(A)(23) (motor vehicles, trailers and semitrailers, weighing gross vehicle weight of 10,000 pounds or more, used to transport property for hire by motor carrier engaged in interstate commerce).
10 Section 58.1-3506(A)(2) (aircraft seating maximum of 50 passengers); § 58.1-3506(A)(11) (privately owned vans seating 12 or more persons).
11 Section 58.1-3506(A)(13) (owned or leased by members of volunteer rescue squad or fire department); § 58.1-3506(A)(14) (owned or leased by auxiliary members of volunteer rescue squad or fire department); § 58.1-3506(A)(15) (owned by nonprofit organization and used to deliver meals to homebound persons or provide transportation to senior or handicapped citizens); § 58.1-3506(A)(17) (owned and regularly used by veteran who has either lost, or lost the use of limb or who is blind); § 58.1-3506(A)(18) (owned or leased by persons appointed to serve as auxiliary police officers).
12 Section 58.1-3506(A)(19) (machines and tools owned by commercial air carrier that uses such machines and tools in commercial airline maintenance, repair, and rebuilding facility, which has assessed value of at least $100,000,000 and is located on or contiguous to airport).
13 See art. X, § 1.
14 See Roanoke v. Michael's Bakery Corp., 180 Va. 132, 21 S.E.2d 788 (1942).
15 Section 58.1-1101(A)(1).
16 Section 58.1-1101(A)(2).
17 Section 58.1-1101(A)(2a).
18 Section 58.1-1101(A)(7).
19 The significance of granting the legislature the authority to define "household goods' is seen by contrasting the language of § 6(e) with the language of the Nebraska Constitution that was at issue in State ex rel. Meyer v. Peters, 191 Neb. 330, 215 N.W.2d 520 (1974). The Nebraska Constitution authorized the legislature to exempt household goods and personal effects as defined by law. The Nebraska court construed this language as limiting the legislature's authority to define the terms, and thus limiting the exemption, to items fitting within the common law definition of household goods and personal effects. This fixed definition did not include items that under common law were considered real estate. Id. at 334, 215 N.W.2d at 524.
20 Section 58.1-3504(A)(1).
21 Section 58.1-3504(A)(2).
22 Section 58.1-3504(A)(3).
23 Section 58.1-3504(A)(4).
24 Section 58.1-3504(A)(5).
25 Section 58.1-3504(A)(6).
26 Section 58.1-3504(A)(9).
27 2 A.E. DICK HOWARD, supra note 2, at 1087.
28 1997 Va. Acts ch. 250. Chapter 250, originally introduced as House Bill 2177, was unanimously passed by the House of Delegates and by the Senate, respectively, on February 4 and 14, 1997. The bill was enrolled in the House and signed by the Speaker on February 26, 1997, signed by the President of the Senate the next day and by the Governor on March 11, 1997. The bill went into effect on July 1, 1997. The unanimous passage of this legislation suggests that the General Assembly is confident of its power under Article X, § 6(e) to classify and define motor vehicles as household goods.
29 Section 58.1-3504(A)(9).
30 Section 58.1-3504(A)(9).
31 See § 58.1-3504(A)(8).
32 With regard to motor vehicles having a value over $20,000, there are several ways the General Assembly may draft legislation to effectively tax such vehicles on the amount of value in excess of $20,000. Conceivably, the General Assembly could exercise its powers to define and classify household goods, to exempt or partially exempt such goods, and to prescribe by general law the manner in which localities tax tangible personal property in a variety of ways that would be constitutional. There may also be other powers, such as its power to exempt intangible property in whole or in part by general law, which the General Assembly also may invoke.
33 Indeed, the Supreme Court of Virginia has made it clear that "[a] statute is not to be declared unconstitutional unless the court is driven to that conclusion' and that statutes will be upheld even when "their constitutionality is debatable. " Roanoke v. Michael's Bakery Corp., 180 Va. at 142, 21 S.E.2d at 792.
34 See, e.g., Roanoke v. Michael's Bakery Corp., 180 Va. at 132, 21 S.E.2d at 788.
Attorney General's Opinion