Tax Type
Individual Income Tax
Description
Tax Commissioner is not required to waive the transfer fee based on erroneous telephonic advice.
Topic
Land Preservation Tax Credit
Pass-Through Entities
Date Issued
02-27-2014
February 27, 2014
Re: § 58.1-1821 Application: Individual Income Tax
Dear *****:
This will reply to your letter in which you appeal the denial of a Land Preservation Tax Credit (the "Credit") purchased by ***** (the "Taxpayers").
FACTS
In 2012, the Taxpayers purchased the Credit from the individual owners. They filed a Virginia Form LPC-2 reporting the Credit Transfer. The Department would not authorize the transfer of the Credit because the transfer fee was not paid. The Taxpayers appeal, contending that both the statutes and form instructions mandate a fee only when the transfer of a Credit is made in connection with a pass-through entity. The Taxpayers also assert that they received the same advice from the Department via telephone.
DETERMINATION
Interpretation of the Statute
Virginia Code § 58.1-513 C 2 provides that:
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- A fee of two percent of the value of the donated interest shall be imposed upon any transfer arising from the sale by any taxpayer of credits under this article and upon the distribution of a portion of credits under this article to a member, manager, partner, shareholder or beneficiary . . .
The Taxpayers contend that because the statute uses the word "and" to couple the transfers and distributions means subsection Va. Code § 58.1-513 B applies to both. Based on this reasoning, only transfers or sales would only be subject to the fee if they were made by a pass-through entity.
In Shelor Motor Co. v. Miller, 261 Va. 473, 479, 544 S.E.2d 345, 348 (2001), the Court stated, "It is well settled that when the language of a statute is plain and unambiguous, we are bound by the plain meaning of that language." The first clause of Va. Code § 58.1-513 C 2 states that the fee is required "upon any transfer" from the sale of the Credit by "any taxpayer." Any taxpayer would include individuals, pass-through entities, corporations, estates, trusts, and any other entity eligible to earn the Credit. Any transfer would include a transaction between any combination of individuals, pass-through entities, corporations, estates, and trusts. The fact that the statutory language uses the terms "upon any transfer" clearly indicates the fee may be imposed on a sale or transfer regardless of entity type.
Contrary to the Taxpayers position, the reference to Va. Code § 58.1-513 B in the second clause is merely a reference to the type of entities from which a member, manager, partner, shareholder or beneficiary might receive a distribution of the Credit. Thus, the second clause requires a fee "upon the distribution" of a Credit to pass-though entity owners. If the intent of Va. Code § 58.1-513 C 2 were limited only to transfers from pass-through entities to its owners, then there would be no need for the first clause to identify "any taxpayer." Under the plain meaning of the statute, Va. Code § 58.1-513 B only applies to the second clause.
Generally, Virginia income tax credits earned by pass-through entities may be passed through to their owners. The Credit is unique among Virginia's income tax credits in that it may also be transferred from one taxpayer to another. Such transfers involve consideration from the taxpayer wishing to obtain the credit. These transfers or sales are separate transactions from the distribution of a Credit to an owner by a pass-through entity. As such, even if the language were not clear and unambiguous, the statutory language differentiates transfers or sales by any taxpayer from distributions made by pass-through entities. Further, the Taxpayers' rationale would discriminate against transfers and distributions from pass-through entities by exempting transfers from other types of taxpayers. Such discrimination was not the intent of the General Assembly when the transfer fee was enacted.
Tax Form Instructions
The Taxpayers assert that instructions from Form LPC-2 only require the fee to be paid for distributions of the Credit by pass-through entities. The instructions state that a "2% fee of the appraised value of the donated interest shall be imposed on all transfers arising from the sale of credits and on all pass-through allocations." Contrary to the Taxpayers assertions, the instructions require the fee to be paid on all transfers from the sale of the Credit regardless of entity type.
Further, tax form instructions merely paraphrase the statute and generally make no reference to the requirements for reporting amounts on a particular line of a return. The information provided in Virginia's tax return instructions is intended to provide helpful guidance to taxpayers. It is not intended to provide a detailed explanation of every provision or nuance of Virginia's tax law.
Written Advice
The Taxpayers argue that the Department instructed them via telephone that the transfer fee for the Credit only applied to distributions from pass-through entities. Virginia Code § 58.1-1835 authorizes the Tax Commissioner to abate an assessment or a portion of an assessment that is attributable to erroneous advice furnished to the taxpayer in writing by an employee of the Department acting in his official capacity. This code section would also apply to the transfer fee for the Credit. In this case, the Department provided advice by telephone, not in writing. Furthermore, without knowing the specific facts and questions raised during that conversation, it cannot be determined if the advice was correct or erroneous. As such, the Tax Commissioner is not required to waive the transfer fee based on erroneous telephonic advice.
CONCLUSION
Based on the facts of this case, the transfer fee must be paid in order for the Department to transfer the Credit purchased by the Taxpayers from the Credit holders in 2012. Payment should be sent to the Virginia Department of Taxation, Tax Credit Unit, P.O. Box 26544, Richmond, Virginia 23261-6544, Attn: *****.
The Code of Virginia sections and public document cited are available on-line at www.tax.virginia.gov in the Laws, Rules & Decisions section of the Department's web site. If you have any questions regarding this ruling, 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/1-5331200178.B
Rulings of the Tax Commissioner