Tax Type
BTPP Tax
Description
Fuel dispensers are fixtures to realty, not tangible personal property subject to the BTPP tax.
Topic
Local Taxes Discussion
Tangible Personal Property
Taxpayers' Remedies
Date Issued
04-22-2014
April 22, 2014
Re: Appeal of Final Local Determination
Taxpayer: *****
Locality: *****
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. The Taxpayer appeals assessments of business tangible personal property (BTPP) taxes issued to the Taxpayer by the ***** (the "City") for the 2012 and 2013 tax years.
The BTPP tax is imposed and administered by local officials. Virginia Code § 58.1-3983.1 D 1 authorizes the Department to issue determinations on taxpayer appeals of BTPP assessments. On appeal, a local 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 documents 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 operates a service station in the City. In 2011, the Taxpayer replaced its fuel dispensers (gas pumps) in order to comply with federal requirements regarding debit card transactions. The installation process took approximately four weeks and required certain modifications to the Taxpayer's fuel delivery system. The Taxpayer states that it has no intention of removing the fuel dispensers.
The City adjusted the Taxpayer's 2012 and 2013 BTPP tax returns to include the fuel dispensers as tangible personal property and issued assessments. The Taxpayer appealed the assessments to the City. In its final determination, the City upheld the assessments on the basis that the fuel dispensers: (1) were not an integral part of the concrete structures which supported other parts of the fuel delivery system; (2) were not part of a physical building structure; and (3) were attached to the realty so as to be easily accessible, easily replaced or easily removed without causing damage. The Taxpayer appeals to the Tax Commissioner, contending the fuel dispensers are fixtures and should be considered real property not subject to the BTPP tax.
ANALYSIS
Real vs. Tangible Property
Real property and all tangible personal property except the rolling stock of public service corporations and that which is 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.
The method of taxation of real property is provided under Va. Code § 58.1-3200 et seq., whereas the taxation of tangible personal property is provided under Va. Code § 58.1-3500 et seq. On those occasions when an item of tangible personal property is determined to be a fixture, it is treated as real property for purposes of local taxation. Fixtures are presumed to be annexed to the realty in some form.
In Danville Holding Corp. v. Clement, 178 Va. 223, 232, 16 S.E.2d 345, 349 (1941), the Virginia Supreme Court (the "Court") set forth three general rules to be used in determining whether an article of tangible personal property is a fixture, and thus considered a part of the real estate for purposes of taxation, or remains personal property subject to taxation as BTPP. The three tests are: (1) the annexation of the chattel (property) to the realty, actual or constructive; (2) its adaptation to the use or purpose to which that part of the realty to which it is connected is appropriated; and (3) the intention of the parties, i.e., the intention of the owner of the chattel to make it a permanent addition to the freehold.
In order for the rules to apply, it is presumed that the property is annexed to the realty in some form. In its decision, the Court noted that the "intention of the party making the annexation is the paramount and controlling consideration." Id.
In addition, the Court stated that each fixture case must be decided according to its particular facts and circumstances. Id. The Taxpayer contends that because the Department determined that fuel dispensers and other components of an integrated fuel delivery system were fixtures in Public Document (P.D.) 00-65 (4/26/2000), the Department should find that the fuel dispensers in this case are also fixtures. In its final determination, however, the City declined to apply P.D. 00-65 because that case involved sales and use tax, not BTPP tax. In any case, because the outcome of a fixture case depends on the particular facts and circumstances, P.D. 00-65 cannot be interpreted to classify fuel dispensers or any other item of tangible personal property as fixtures in all cases.
Annexation
Annexation of chattel must be actual or constructive. In Danville Holding, the Court concluded "the method or extent of the annexation carries little weight, except insofar as they relate to the nature of the article, the use to which it is applied and other attending circumstances as indicating the intention of the party making the annexation." In other words, so long as chattel is attached to a building to carry out the purpose for which such building was erected and to increase its value for occupation or use, such chattel may become part of the realty even if it may be removed without injury to itself or the building.
In its final determination, the City described the fuel dispensers as stand-alone machines and equipment that are bolted on top of a concrete island. The City noted that they were easily accessible and could easily be replaced or moved without being damaged or causing damage to the realty. The Taxpayer points out it took about a month to install the pumps, which had to be connected to electrical wiring and underground tanks. In addition, the Taxpayer asserts that removing the fuel dispensers would require considerable effort.
In addition, the City argues the fuel dispensers must be classified as tangible personal property because they were not part of a physical building structure and not included in the real estate tax assessment. An item of property, however, does not necessarily have to be attached to a building to be considered a fixture. Because the facts of Danville Holding involved machinery in a building, the tests are applied in context to a building. Buildings, however, make up only part of realty. Because land is also realty, an item of tangible personal property does not necessarily have to be part of a building to be considered a fixture.
Pursuant to the tests set forth in Danville Holding, however, the manner in which the property is attached to the realty or the ease with which it could be replaced or moved is not determinative. A taxing jurisdiction must also consider the adaptation of the property and the intention of the property owner. See P.D. 10-232 (9/29/2010).
Adaptation
If attached property is essential to the purposes for which the building (or realty) is used or occupied, it would generally be considered a fixture even if its annexation to such building is such that it may be severed without injury to either the chattel or the building.
The business at issue has operated for more than 30 years as a convenience store and retail service station. Part of the realty is appropriated to permit customers to dispense fuel for their automobiles. This function would be impossible without the fuel dispensers.
Intention
The Court has emphasized the intention of the party making the annexation is the chief test to be considered in determining whether the chattel has been converted into a fixture. Although the intention does not need to be expressed in words, it should be able to be inferred from the nature of the property annexed, the purpose for which it was annexed, the relationship of the party making the annexation, and the structure and mode of annexation.
Under this test, an owner of real property usually places permanent improvements upon such property in order to enhance its usefulness and market value. Thus, when an owner of realty annexes chattels to such realty, a doubt as to his intention to annex them permanently will in most cases be resolved in favor of such intent. See Danville Holding at 232 and 233.
In this case, the Taxpayer owns the realty to which the fuel dispensers are annexed. That fact that the Taxpayer's previous fuel dispensers had been installed for approximately twenty years and were only removed to comply with certain federal legislation evidences an intent to make any fuel dispensers installed on the property a permanent addition to the freehold. Had the Taxpayer chosen to keep the previous fuel dispensers, its business could have been negatively impacted because the pumps would not have been able to accept debit card payments. As such, the new fuel dispensers effectively enhanced the usefulness and market value of the realty.
DETERMINATION
A determination as to whether an item of property is a fixture must be made based on the facts of the particular case. In this case, the fuel dispensers were annexed to the property and adapted to the use of that part of the realty, a gas station. In addition, the evidence indicates the Taxpayer intended to make the fuel dispensers a permanent addition to the realty. After a careful review of the information presented on appeal, therefore, I find that the fuel dispensers were fixtures to realty, not tangible personal property subject to the BTPP tax. The City is hereby directed to reclassify the property and make the appropriate adjustments to the assessments.
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/1-5612431749.M
Rulings of the Tax Commissioner