Tax Type
Machinery Tools Tax
Description
Taxpayer did not provide the requested documents. County denied application.
Topic
Local Taxes Discussion
Records/Returns/Payments
Tangible Personal Property
Date Issued
08-13-2014
August 13, 2014
Re: Appeal of Final Local Determination
Taxpayer: *****
Locality: *****
Machinery and Tools 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 machinery and tools tax issued to the Taxpayer by the ***** (the "County") for the 2009 through 2011 tax years.
The machinery and tools tax is imposed and administered by local officials. Virginia Code § 58.1-3983.1 authorizes the Department to issue determinations on taxpayer appeals of machinery and tools tax assessments. On appeal, a machinery and tools tax assessment is deemed prima facie correct, i.e., 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 document cited are available on-line in the Laws, Rules and Decisions section of the Department's web site, located at www.tax.virginia.gov.
FACTS
The Taxpayer is a manufacturer with a facility located in the County. It asserts that it reported the cost of its machinery and tools at book value for the tax years at issue. The Taxpayer applied to correct the cost of the machinery and tools to reflect their original capitalized cost. The County requested that the Taxpayer provide all complete federal and state income tax returns and associated schedules. The Taxpayer did not provide the requested documents. Accordingly, the County denied the Taxpayer's application.
The Taxpayer appeals the County's final determination, contending that the machinery and tools should be valued based on their original capitalized cost. The Taxpayer also asserts that it is not necessary to provide the County with the requested documentation because it provided depreciation schedules for its facility located in the County.
ANALYSIS
Valuation
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.” This provision of the Constitution contains the presumption that the General Assembly's prescribed valuation method will both standardize valuation practices across all the local governments in the Commonwealth and result in something approximating fair market value. Virginia Code § 58.1-3103 specifically charges local commissioners with the responsibility of assessing property at fair market value.
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- As part of his duties each commissioner of the revenue shall ascertain and assess, at fair market value, all subjects of taxation in his county or city on the first day of January in each year, except as otherwise provided by law. [Emphasis added.]
Fair market value is generally 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). If the valuation methodology employed by a locality results in an assessment well above fair market value, the locality may use another methodology prescribed in Va. Code § 58.1-3507 B. See Public Document (P. D.) 05-129 (8/3/2005).
In attempting to achieve property valuations that reasonably approximate fair market value, the General Assembly has statutorily prescribed different methodologies for use in the valuation of different classifications of property. For purposes of business tangible personal property taxation, the machinery and tools of manufacturers are separate from the general classification of tangible personal property. The method of valuation to ascertain the fair market value of machinery and tools used in a manufacturing business is set forth in Va. Code § 58.1-3507 B.
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- Machinery and tools segregated for local taxation . . . shall be valued by means of depreciated cost or a percentage or percentages of original total capitalized cost excluding capitalized interest. In valuing machinery and tools, the commissioner of the revenue shall, upon written request of the taxpayer, consider any bona fide, independent appraisal presented by the taxpayer. [Emphasis added.]
The General Assembly has not provided a definition for the term "original total capitalized cost" within the context of Va. Code § 58.1-3507 B. Absent a statutory definition, the plain and ordinary meaning of the term is controlling. See Samson v. Board of Supervisors, 257 Va. 589, 514 S.E.2d 345 (1999). Original cost means "[a]n asset's net price; the original cost of an asset. Also termed historical cost, original cost." Black's Law Dictionary 371 (Eighth Edition 2004). Based on this reasoning, the original total capitalized cost refers to the original price of an asset purchased new. Thus, the original total capitalized cost is the cost of the tangible property paid by the owner who first purchased the property as capitalized, not the costs paid by any subsequent purchasers. See Op. Va. Att'y Gen (8-109), P.D. 12-27 (3/6/2012) and P.D. 13-20 (2/15/2013).
Documentation
The County requested that the Taxpayer provide certain federal and Virginia tax returns and other supporting documents in order to accurately determine the machinery and tools tax liability. The Taxpayer asserts that requested returns are unnecessary for the County to provide the requested relief.
Virginia Code § 58.1-3109 6 grants local assessing officers the authority to require records and other information necessary to verify the accuracy of a taxpayer's M&T tax returns. In the Taxpayer's case, the County determined that the depreciation schedules provided by the Taxpayer were insufficient to prove the value of the Taxpayer's machinery and tools. When a taxpayer fails to maintain or provide sufficient records on which to make an accurate determination of the tangible property's cost, the locality may deny the Taxpayer's request to revalue its machinery and tools.
Local Ordinance
The Taxpayer contends that the County assessed the machinery and tools tax for the 2011 tax year based on a 50% assessment ratio even though the Virginia Guide to Local Taxes on Business (the "Guide") showed that the County's assessment ratio decreases over the age of the equipment. The Guide is a publication produced by the Virginia Economic Development Council that reports, among other things, the machinery and tools tax assessment ratios provided in each Virginia locality's ordinance.
Although the Department is authorized to interpret local ordinances, it is not required to do so. See the Guidelines for Appealing Local Business Taxes, issued as P.D. 04-28 (6/25/2004). Even where the Department does offer its opinion with regard to a local ordinance, the interpretation, application and administration of a locality's ordinance remains the responsibility of the local assessing official.
The Department has suggested a method of achieving fair market value for purposes of tangible personal property taxation from the point at which both a taxpayer and the locality have agreed to the results of a revaluation. In P.D. 07-2 (1/10/2007), the Department ruled the original cost of the asset could be adjusted so that when the appropriate depreciation rate is applied, a valuation reasonably resembling fair market value is achieved. To make this adjustment, the following formula must be used:
Appraised value / depreciation rate in year of appraisal = adjusted original cost.
Absent an agreement on the results of a revaluation, a locality's valuation must be sustained so long as it has uniformly applied its prescribed valuation method and such method results in something approximating fair market value.
DETERMINATION
As indicated above, an assessment issued by a local assessing officer is deemed to be prima facie correct. See Va. Code § 58.1-3983.1 B 4. In this case, the Taxpayer has failed to comply with requests for documentation from the County. Accordingly, the County's denial of the Taxpayer's request to revalue its machinery and tools for the 2009 through 2011 tax years was proper.
However, I am remanding this case back to the County to allow the Taxpayer one final opportunity to provide the County with the previously requested documentation. The Taxpayer should provide such documentation to the County within 30 days of the date of this determination. If the required documentation is not provided within the time allowed, the County's denial of the Taxpayer's request to adjust the cost of its machinery and tools for the 2009 through 2011 tax years will be considered to be correct.
If you have any questions regarding this determination, you may contact ***** in the Office of Tax Policy, Appeals and Rulings, at *****.
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- Sincerely,
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Craig M. Burns
Tax Commissioner
AR/1-5684694407.B
Rulings of the Tax Commissioner