Document Number
04-19
Tax Type
BTPP Tax
Property Tax
Description
Timeshares
Topic
Local Power to Tax
Date Issued
06-01-2004

June 1, 2004


Re: Appeal of Assessment: Final Local Determination
Taxpayer: *****
Locality Assessing Tax: *****
Business Tangible Personal Property (BTPP) 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 a final local determination of an assessment of BTPP taxes made by the Commissioner of the Revenue of the ***************** (the "City") for tax years 1999, 2000 and 2001.

Local personal property taxes are imposed and administered by local officials. Virginia Code § 58.1-3983.1 authorizes the Department to issue determinations on taxpayer appeals of certain BTPP tax assessments. On appeal, a BTPP assessment is deemed prima facie correct. In other words, 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 as summarized below. This determination addresses the question of whether the City appropriately assessed the Taxpayer for certain personal property that the Taxpayer asserts is the property of individual timeshare owners, not the property of the Taxpayer. The Code of Virginia sections, regulations and public documents cited are available online in the Tax Policy Library section of the Department of Taxation's web site, located at www.tax.state.va.us.
FACTS

The Taxpayer is the owner's association of a timeshare condominium (the "Property") located in the City. A "timeshare" is defined in Va. Code § 55-362 as follows:
    • "Time-share" means either a time-share estate or a time-share use plus its incidental benefits;
    • "Time-share estate" means a right to occupy a unit or any of several units during five or more separated time periods over a period of at least five years, including renewal options, coupled with a freehold estate or an estate for years in a time-share project or a specified portion thereof;
    • "Time-share unit" or "unit" means the real property or real property improvement in a project which is divided into time-shares and designated for separate occupancy and use.

The Taxpayer states that it owns no tangible or real property, asserting that all property is "owned in percentage by the apartment owners" (hereinafter referred to as "unit owners"). The Taxpayer also states "the evidence of ownership is recorded by deed for each unit week and filed in the clerk's office in the local circuit court." In purchasing a unit week, a person acquires a 1.9165 percentage interest in the Property and any profits earned by the Taxpayer.

The master deed, by-laws and the management agreement (the "governing documents") of the Property distinguish between the condominium property (i.e., the "unit"), the "general common elements (property other than the units) and the "limited common elements," or property that is common, but limited to a few units (such as a common hallway), as defined in Va. Code § 55-79.2. The governing documents provide that each of the individual units is "held in fee simple and may be retained, occupied, conveyed, transferred, encumbered, inherited or devised in the same manner as any other parcel of real property independent of the other individual units." The tangible personal property that is included in the individual units is the matter of concern in this case.

The unit owners are ultimately responsible for the costs of operating the condominium. Because of the large number of unit owners and the short duration of their occupancy of the units, the governing documents delegate responsibility for the administration of the condominium to the Taxpayer. In this capacity, the Taxpayer is authorized to assess and collect annual maintenance fees from the unit owners to pay the costs of managing, furnishing, cleaning and maintaining the facility, including the individual units and the common areas. The unit weeks are regarded as vacation homes owned by each individual owner. The household goods with the exception of the furniture are the property of the individual unit owners.

Provision is also made in the governing documents for the Taxpayer to prorate and return to the tax assessor, real estate taxes due on the individual units on behalf of the unit week owners. The governing documents make it clear, however, that real estate taxes are the responsibility of the individual unit week owners, not the Taxpayer.

The Taxpayer also engages in providing rental services for individual unit owners. The Taxpayer is a member of the City's Hotel and Motel Association and holds itself out as having a "rental program for our owners that choose to rent their unit out." Nonetheless, in these instances the unit owners retain ownership of the unit and pay the annual maintenance fees.

The Taxpayer is also engaged in the sale of unit weeks that are without owners. At the time this appeal was filed with the Department, 1.2 percent of the unit weeks were for sale.

The Taxpayer agrees that it owes BTPP tax for its "business property." In dispute are the furniture and appliances in the individual units. The Taxpayer maintains that:
    • (1) It does not own any business property other than that used in its business office.
      (2) It does not hold property solely for rental; rather, it acts as an agent for the unit owners who are desirous of renting their property (unit week).
      (3) The assets that appear on its federal tax return balance sheet (Schedule L) include those assets that belong to the individual unit owners and are listed on Schedule L "for control purposes only." The Taxpayer claims a depreciation deduction for only that property owned by the Taxpayer and used for business purposes.

The City used the Taxpayer's federal asset depreciation short reports, which the City contends "tie directly into the Corporate Tax Return -federal form 1120 balance sheets," and concluded, "all personal property listed as assets of the Taxpayer are subject to personal property taxes."
ANALYSIS

Tangible Personal Property

Virginia Code § 58.1-3503 defines tangible personal property as "all personal property not otherwise classified by § 58.1-1100 as intangible personal property or by § 58.1-3510 as merchants' capital. Such tangible personal property is hereby segregated for and made subject to local taxation only pursuant to Article X, Section 4 of the Constitution of Virginia."

Virginia Code § 58.1-3503 provides for the general classification of tangible personal property. Under this section, certain tangible personal property is classified for valuation purposes by separate categories that are not, however, to be considered separate classes for rate purposes. Virginia Code § 58.1-3503(B) notes that the methods of valuing property may differ among the separate categories, so long as each method used is uniform within each category. Included among the 18 enumerated categories are properties employed in a business, and household goods and personal effects, except as exempted under § 58.1-3504.

Under the provisions of Va. Code § 58.1-3504(A), localities may, by ordinance, exempt certain household goods and personal effects from taxation. This provision includes:
  • • Household and kitchen furniture, including gold and silver plates, plated ware, watches and clocks, sewing machines, refrigerators, automatic refrigerating machinery of any type, vacuum cleaners and all other household machinery, books, firearms and weapons of all kinds.
  • • All other tangible personal property used by an individual or a family or household incident to maintaining an abode.

This special classification authorized by Va. Code § 58.1-3504(A) "shall apply only to such property owned and used by an individual or by a family or household incident to maintaining an abode." [Emphasis added.]

In this case, the governing documents of the condominium define the property of the individual unit owners as including: (1) the space enclosed by the perimeter walls of the unit; (2) all nonstructural interior walls; (3) the decorated inner surfaces of all interior and perimeter walls and surfaces, including flooring, carpeting, tiles and all other finishing materials; (4) electric, heating, ventilating and air conditioning units within each unit; and (5) any fixtures, appliances or other equipment installed for the sole use of that unit.

The governing documents of the condominium also provide that the "Furniture in units committed to interval ownership shall be owned by the [Taxpayer]." [Emphasis added.] In other words, while all of the household effects, including appliances, are considered to be the property of the individual unit owners, the furniture in each of the individual units is the tangible personal property of the Taxpayer.

Section 35-7 of the City's ordinance regarding the classification of the household goods mentioned above is taken verbatim from Va. Code § 58.1-3504 cited above. In this case, however, because the furniture of the individual units is owned by the Taxpayer, it does not qualify for this exemption. Rather, the furniture is subject to the BTPP tax pursuant to Va. Code § 58.1-3503(17), which establishes a separate classification for valuation purposes for:
    • All tangible personal property employed in a trade or business other than that described in subdivisions 1 through 16 of this subsection, which shall be valued by means of a percentage or percentages of original cost.

Any tangible personal property other than that specified in the governing documents as being the property of the Taxpayer, however, is presumed to be that of the unit owners and, therefore, exempt of the BTPP tax.

Appliances and Rentals

The Taxpayer asks if appliances are appropriately considered as tangible personal property for purposes of local tax assessments. The governing documents include appliances in their definition of "unit." Therefore, the appliances are considered to be the property of the unit owners. As such, the appliances qualify for the exemption provided for in Va. Code § 58.1-3504 and Section 35-7 of the City's ordinance.

Virginia Code § 58.1-3504(B) also addresses the question of household appliances in rental properties:
    • Household appliances in residential rental property used by an individual or by a family or household incident to maintaining an abode shall be deemed to be fixtures and shall be assessed as part of the real property in which they are located.

For purposes of this subsection, "household appliances" are defined as "all major appliances customarily used in a residential home and which are the property of the owner of the real estate, including without limitation, refrigerators, stoves, ranges, microwave ovens, dishwashers, trash compactors, clothes dryers, garbage disposals and air conditioning units."

The Taxpayer acts as the agent of the individual unit owners. The individual unit owners, not the Taxpayer, are responsible for the real property taxes. Pursuant to Va. Code § 58.1-3504(B), the appliances in the rental units owned by the unit owners are deemed to be fixtures and subject to the real property tax. These appliances may not be included in the Taxpayer's BTPP tax assessment.
DETERMINATION

Based on the facts presented by both the Taxpayer and the City, it appears that the Taxpayer is in the business of maintaining the Property, selling vacant unit weeks and acting as a rental agent on behalf of unit week owners. It is not clear if the Taxpayer is engaging in the business of renting the unit weeks that it owns and advertises for sale. That is a question to be determined by the local commissioner of the revenue but is not pertinent to the question of the taxable status of the furniture in the units.

According to the governing documents, all the furniture in the units is the property of the Taxpayer, not the unit owners. As such, the furniture does not qualify for the exemption provided in Va. Code § 58.1-3504 and § 35-7 of the City's ordinance. Rather, such furniture falls under the classification of tangible personal property employed in a trade or business as provided in Va. Code § 58.1-3503(A)(17) and is subject to the BTPP tax.

Finally, given the specific facts in this case, appliances in units under either unit ownership or Taxpayer ownership are not subject to the tangible personal property tax even if the units were rented. Rather, the appliances are deemed to be fixtures and subject to the real property tax. These appliances are exempt from the BTPP tax under either Va. Code §§ 58.1-3504(A) or 58.1-3504(B).

I am returning this case to the City with instructions to recalculate the Taxpayer's BTPP tax assessments in accordance with the findings of this determination. If you have any questions regarding this determination, you may contact ***** in the Office of Policy and Administration, Appeals and Rulings, at *****.
                • Sincerely,


                    • Kenneth W. Thorson
                      Tax Commissioner


AR/45065H


Rulings of the Tax Commissioner

Last Updated 08/25/2014 16:46