Tax Type
Merchants Capital
Description
A locality lawfully may decline to impose a tax on merchant's capital, including short-term rental property.
Topic
Local Power to Tax
Local Taxes Discussion
Date Issued
07-12-2013
July 12, 2013
The Honorable Terry L. Yowell
Commissioner of the Revenue Culpeper County
151 North Main Street, Suite 201
Post Office Box 1807
Culpeper, Virginia 22701
Dear Ms. Yowell:
I am responding to your request for an official advisory opinion in accordance with § 2.2-505 of the Code of Virginia.
Issue Presented
You ask for guidance regarding the taxation of short-term rental property in a locality that does not have a local ordinance establishing either a merchant's capital tax or a tax on short-term rental property.
Response
It is my opinion that short-term rental property is to be classified as a distinct category of merchants' capital and may be taxed by a locality as merchants' capital or as short-term rental property, but may not be classified or taxed as personal tangible property. It further is my opinion that a locality lawfully may decline to impose a tax on merchant's capital, including short-term rental property. Finally, it is my opinion that the absence of a local ordinance imposing a tax on merchant's capital or short-term rental property represents a choice by the locality's governing body not to impose a tax on such property.
Background
As you relate, in 2010, the Virginia General Assembly amended § 58.1-3510.6(E) of the Code of Virginia, Short-Term Rental Property Tax, to exclude short-term rental property from being classified and taxed as tangible personal property.1 The Code now provides that short-term rental property may be taxed as merchants' capital, or a locality may adopt a local ordinance authorizing a short-term rental property tax.2 You state that the locality you serve has adopted neither a merchant's capital tax nor a short-term rental property tax.3
Applicable Law and Discussion
Article X, § 1 of the Constitution of Virginia prescribes that lain property, except hereinafter provided, shall be taxed[,]" and further provides that "[t]tle General Assembly may define and classify taxable subjects." The Constitution also establishes that "[t]angible personal property is subject to local taxation only, to be assessed for local taxation in such manner and at such times as the General Assembly may prescribe by law."4 Additionally, the General Assembly is authorized to allow a local governing body "the option to exempt or partially exempt from taxation any business, occupational or professional license or any merchant's capital, or both."5
The General Assembly, pursuant to this constitutional authority, has provided that tangible personal property shall consist of all personal property not otherwise classified as intangible personal property, as merchants' capital, or as short-term rental property.6 The General Assembly further has declared that "[s]hort-term rental property shall constitute a classification of merchants' capital "7 While the Code is clear that localities may tax such property as short-term rental property under § 58.13509, or may apply the merchants' capital tax authorized under § 58.1-3510.6, but not both,8 the General Assembly also expressly has provided that "no county, city or town shall be required to impose a tax on [merchants'] capital."9
Thus, although the General Assembly has enabled localities to tax short-term rental property, whether as merchant's capital or, in its own name as a distinct classification thereof, Virginia law does not require localities to do so. Based upon these facts, I necessarily must conclude that the absence of a local ordinance imposing a tax on either merchant's capital or short-term rental property represents a choice by the locality's governing body to decline to tax such property.
Conclusion
Accordingly, it is my opinion that short-term rental property is to be classified as a distinct category of merchants' capital and may be taxed by a locality as merchants' capital or as short-term rental property, but may not be classified or taxed as personal tangible property. It further is my opinion that a locality lawfully may decline to impose a tax on merchant's capital, including short-term rental property. Finally, it is my opinion that the absence of a local ordinance imposing a tax on merchant's capital or short-term rental property represents a choice by the locality's governing body not to impose a tax on such property.
With kindest regards, I am
Very truly yours,
Kenneth T. Cuccinelli, II
Attorney General
Kenneth T. Cuccinelli, II
Attorney General
1. 2010 Va. Acts chs. 225, 295
2 VA. CODE ANN. § 58.1-3510.4 (Supp. 2012)
3 See § 58.1-3509 (2009) (providing, in relevant part, "The capital of merchants is segregated for local taxation only; however, no county, city or town shall be required to impose a tax on such capital[.)") See also VA. CONST. art. X, § 6(j).
4 VA. CONST. art. X, § 4.
5 VA. CONST. art. X, § 6(j).
6 VA. CODE ANN. § 58.1-3500 (Supp. 2012).
' Section 58.1-3510.4(A). "Merchants' capital" is broadly defined as "[i]nventory of stock on hand; daily rental vehicles as defined in § 58.1-1735; and all other taxable personal property of any kind whatsoever, except money on hand and on deposit and except tangible personal property not offered for sale as merchandise . . . ." Section 58.1-3510 (Supp. 2012) (emphasis added).
8 Section 58.1-3510.4(A).
9 Section 58.1-3509.
Attorney General's Opinion