Tax Type
BTPP Tax
Description
Fair Market Value, Appraisals
Topic
Local Power to Tax
Tangible Personal Property
Date Issued
06-27-2007
June 27, 2007
Re: Appeal of Final Local Determination
Locality: *****
Taxpayer: *****
Business Tangible Personal Property 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 an assessment of business tangible personal property (BTPP) taxes issued to the Taxpayer by the ***** (the "County") for tax years 2000 through 2004.
The BTPP tax is imposed and administered by local officials. Virginia Code § 58.1-3983.1 D authorizes the Department to issue determinations on taxpayer appeals of BTPP tax assessments. On appeal, a BTPP tax assessment is deemed prima facie correct. That is, 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 summarized below. The Code of Virginia sections and public documents cited are available on-line in the Tax Policy Library section of the Department's web site, located at www.tax.virginia.gov.
FACTS
The Taxpayer, a wholesaler, contests the assessment of its tangible personal property made by the County for tax years 2000 through 2005. The Taxpayer initially appealed its assessments to the County on December 29, 2003. The Taxpayer hired an independent outside appraiser to value the property in question, and submitted the appraisal made by the firm in conjunction for its requests for a refund of BTPP taxes subsequent to its refund request. During its review of the Taxpayer's administrative appeal, the County hired an outside appraiser to perform an independent appraisal of the Taxpayer's business tangible personal property. Relying on the appraisal it commissioned, the County upheld its original assessment and denied the Taxpayer's request for a refund on November 18, 2005.
The appraisers used different methods in making their appraisals, and the Taxpayer is contesting the methodology used by the County's consulting appraiser. In turn, the County's appraiser questions the depreciation schedules used by the Taxpayer's appraiser.
The Taxpayer has paid the taxes owing and due for the years in dispute and requests a refund. The amount of the refund request is not specified. Rather, the Taxpayer asks the Department to determine the appropriate measure of fair market value (FMV), so that in turn, it can request a refund in a specific amount.
ANALYSIS
Taxation of Tangible Personal Property
All tangible personal property, unless declared intangible under the provisions of Va. Code § 58.1-1100 et seq., is reserved for local taxation by Article X, § 4 of the Constitution of Virginia. Article X, §§ 1 and 2 of the Constitution of Virginia provide that all property, unless specifically exempted within the provisions of the Constitution, shall be taxed at a uniform rate among classes, and that "all assessments of real estate and tangible personal property shall be at their fair market value to be ascertained as prescribed by general law." Virginia Code § 58.1-3103 specifically charges local commissioners of the revenue1 with the responsibility of assessing property at FMV.
Statutorily, the General Assembly has offered some guidance to commissioners of the revenue as to how to best determine FMV. Virginia Code § 58.1-3503 specifies that for most items of tangible personal property, FMV is to be ascertained either by a percentage or percentages of original cost, or in the case of trucks and cars and certain other vehicles, by means of recognized pricing guides. Further, this statute stipulates:
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- Methods of valuing property may differ among the separate categories, so long as each method used is uniform within each category, is consistent with requirements of this section and may reasonably be expected to determine actual fair market value as determined by the commissioner of revenue or other assessing official . . . A commissioner of revenue shall upon request take into account the condition of the property. The term "condition of the property" includes, but is not limited to, technological obsolescence of property where technological obsolescence is an appropriate factor for valuing such property.
Fair Market Value
FMV is a subjective judgment. Generally, it is defined as the price a property will bring when offered by one who desires, but is under no obligation, to sell it, and the buyer has no immediate necessity to purchase it. See Tuckahoe Women's Club v. County of Richmond, 119 Va. 734, 101 S.E.2d 571 (1958).
In Public Document (P.D.) 05-129, the Department found that the use of appraisals in determining FMV is indeed a valuable tool. In that case, the taxpayer had employed the use of an outside appraisal firm and the county declined to review the appraisal in making its assessment. The firm's appraisal was significantly lower than the county's assessment. The Department held that the county was in error in its assertion that it could not consider the professional appraisal in making its assessment.
In the present case, each party procured the services of a board-certified appraisal firm to assist them in determining the FMV of the property in question. The independent appraisals differed significantly. The difference was primarily due to the inclusion of certain capitalized costs associated with the disposal of the assets in question by the County's appraiser.
Under the provisions of Va. Code § 58.1-3503, it is presumed that the local commissioner of the revenue will determine FMV. A primary point of dispute in this case is the inclusion of installation costs, sales taxes, etc. in the calculation of FMV. There is no provision in the Virginia tangible personal property tax law that prevents localities from utilizing a definition of FMV that includes such costs in determining FMV. Indeed, in S. & L. Straus Beverage Corporation v. Commonwealth of Virginia, 185 Va. 1055, 41 S.E.2d 76 (1947), the Virginia Supreme Court found:
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- Taxes of all kinds, property taxes, privilege taxes, tax on capital, income tax and others are usually elements that are combined with cost of material, labor, insurance, rent and many other items to arrive at the selling price of the article produced, and when the article is bought, the amount of purchase is the total sum of money the buyer parts with to get the article, regardless of what proportion of that amount is taxes and what proportion is labor or material or other cost.
While the County's appraiser based its appraisal on the values of the used assets at retail sale, the Taxpayer's appraiser based its analysis on the wholesale value of the assets. The Taxpayer's appraiser assigned values of functional obsolesce to certain items, while the County's appraiser, after inspecting the equipment, declined to do so.
Appraisals
By their very nature, appraisals are subjective, and may or may not provide objective evidence as to the true fair market value of a property. An appraisal is an opinion of fair market value made by a professional appraiser. In other words, an appraisal is a professional judgment made by an expert. Appraisers of tangible personal property utilize numerous different valuation concepts depending on the purpose of the appraisal engagement.
Local assessments
In any evaluation of a local assessing officer's assessment of tangible personal property, the local assessment is considered to be prima facie correct. See Va. Code § 58.1-3983.1 B. In County of Mecklenburg v. Carter, 248 Va. 522, 449 S.E.2d 810 (1994), the Virginia Supreme Court noted that in Virginia, it is
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- settled law that there is a clear presumption in favor of the assessment as made by the assessors and the burden is upon those who seek relief to show that the value as fixed is excessive or out of proportion to other like surrounding property. This is particularly true when, as here, painstaking care was taken by the assessing bodies, fortified as it were by the expert judgment of the appraisal corporation. [Emphasis added.]
In this case, unlike the situations presented in Board of Supervisors of Fairfax County, et al. v. Telecommunications Industries, Inc. 246 Va. 472, 436 S.E.2d 442 (1993) and P.D. 05-129, the County did seek an outside appraisal of the property in dispute prior to issuing its assessment. Appraisals are by nature subjective. The fact that the professional appraisals of firms engaged by the Taxpayer and the County differed is not unusual. Both firms are accredited by professional societies of appraisers, and I find no reason to dispute the findings of the firm retained by the County.
DETERMINATION
The Taxpayer has asked for a "proper" interpretation of FMV as it applies to tangible personal property for purposes of local taxation. As indicated earlier, the definition of FMV is not based on a single standard, but must be evaluated in the context to which it applies. In the case of local property taxation, the Constitution of Virginia and the legislature have established the parameters for determining FMV.
Given the facts presented in this case, I see no reason to reverse the decision of the local assessing official. Unlike other cases presented to the Department in previous years, e.g., P.D. 05-129, in this case the local assessing official performed due diligence in hiring an outside appraiser to value the property in dispute. The appraisal was a professional evaluation conducted in accordance with existing local regulations, which require the inclusion of sales taxes, freight and installation costs in the calculation of original cost. Accordingly, it is my conclusion that the determination issued by the County on November 18, 2005 stands and the Taxpayer is not due a refund.
If you have any questions regarding this determination, you may call *****, Office of Policy and Administration, Appeals and Rulings at *****.
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- Sincerely,
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Janie E. Bowen
Tax Commissioner
ARM-54688471 H
1Under the provisions of Virginia Code § 58.1-3100, the term "commissioner of the revenue" shall include the "director of finance and any other officer of any county or city if such officer performs any or all of the duties of the commissioner of the revenue described herein."
Rulings of the Tax Commissioner