September 8, 2015
Re: Appeal of Final Local Determination
Taxpayer: *****
Locality Assessing Tax: *****
Machinery and Tools Tax
Dear *****:
This final state determination is issued pursuant to your request for reconsideration filed on behalf of the ***** (the "Taxpayer"). You seek a reconsideration of Public Document (P.D.) 15-18 (2/9/2015), the Department's determination letter addressing the Machinery and Tools (M&T) tax assessment issued to the Taxpayer by the ***** (the "City") for the 2013 tax year.
The M&T 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, the machinery and tools tax assessment is deemed prima facie correct, i.e., the local assessment will stand unless the taxpayer proves 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 wvvw.tax.virginia.gov.
FACTS
The Department determined in P.D. 15-18 that the pollution control equipment at issue did not qualify for the exemption from the M&T tax allowed under Va. Code § 58.1-3660 because it was not certified as pollution control equipment as of the 2013 tax day. The Taxpayer seeks a redetermination of P.D. 15-18 contending that the pollution control equipment was exempt from the M&T tax because it was in service as of the 2013 tax day. It also asserts that the Department used the wrong standard of review in its original determination when it remanded the case back to the City to determine whether the equipment at issue qualified as machinery and tools.
ANALYSIS
Exemption
The Virginia Supreme Court has consistently ruled that exemptions from taxation are the exception rather that the rule and as such, they must be strictly construed. If there is any doubt as to whether an exemption applies, it must be resolved in favor of the taxing authority, and the burden is upon the taxpayer to show that it comes within the exemption. See Commonwealth v. Manzer, 207 Va. 996, 154 S.E.2d 185 (1967).
Virginia Code § 58.1-3660, provides an exemption for certified pollution control equipment and facilities from local taxation. In order to qualify, the property must be used primarily for the purpose of abating or preventing pollution and it must be property which the Department of Environmental Quality (DEQ) "has certified" to the Department that it was placed in service in conformity with the state program or state pollution control requirements.
In accordance with Va. Code § 58.1-3515, January 1 has been established "as the effective date of assessment or the tax day." The statute further fixes the status of all taxpayers liable for taxation on property and establishes the valuation date. After carefully reviewing the documents and facts provided by the Taxpayer in its request for reconsideration and during our meeting, I find no basis to overturn the determination in P.D. 15-18. Accordingly, the Taxpayer cannot claim the pollution control equipment exemption from personal property tax for the 2013 tax year.
Machinery and Tools
In P.D. 15-18, the Department remanded the case back to the City to determine whether or any of the pollution control equipment at issue was necessary in the Taxpayer's business and connected with the operation of machinery actually and entirely used in manufacturing process. In doing so, the Department cited language used by the Virginia Supreme Court in City of Winchester v. American Woodmark, 250 Va. 451, 464 S.E.2d 148 (1995) and several Attorney General opinions. See P.D. 11-110 (6/17/2011).
Under The Daily Press, Inc. v. City of Newport News, 265 Va. 304, 576 S.E.2d 430 (2003), which also cites American Woodmark, equipment qualifies as machinery and tools if "the property is actually and directly used in the manufacturing process where new materials are transformed into a substantially different product or the property is connected with the operation of machinery actually and directly used in the manufacturing process."
DETERMINATION
Based on the foregoing, the determination in P.D. 15-18 is upheld. If the Taxpayer continues to disagree with the Department's determination with regard to this issue, it may appeal the Department's final determination to the appropriate circuit court for judicial review pursuant to Va. Code § 58.1-3983.1 G.
Otherwise, I am remanding this case back to the City with instruction to consider whether or not any of the pollution control equipment at issue was machinery and tools using the standard established in Daily Press. If additional documentation is required, it should be provided directly to the City within 30 days of any request. If the Taxpayer is unable to provide adequate documentation, the assessment would be considered correct.
If you have any questions about this determination, you may contact ***** in the Office of Tax Policy, Appeals and Rulings at *****.
Sincerely,
Craig M. Burns
Tax Commissioner
AR/1-5996298801.B