November 24, 2015
Re: Land Preservation Tax Credits and Virginia Localities
This is in response to your letter requesting guidance regarding whether a Virginia locality or its economic development authority ("EDA") may earn Land Preservation Tax Credits.
Two Virginia localities ("the Localities") are contemplating whether to grant conservation easements to qualified land trusts directly or through their respective EDAs. In both cases, the Localities are interested in earning Land Preservation Tax Credits if they are eligible to earn such credits. Although the Localities are exempt from income taxation and, therefore, may not actually claim Land Preservation Tax Credits on income tax returns, they would benefit from receiving Land Preservation Tax Credits by transferring such credits to other taxpayers in return for compensation.
You requested guidance regarding whether a Virginia locality or its EDA qualifies as a "taxpayer" for purposes of the Land Preservation Tax Credit and is, thereby, eligible to earn such credit.
Localities are Not Taxpayers for Virginia Tax Purposes
Va. Code § 58.1-512 provides Land Preservation Tax Credits to taxpayers that convey land located in Virginia or an interest in such land for certain conservation purposes to a public or private conservation agency eligible to hold such land or interest for conservation purposes. Therefore, in order to earn Land Preservation Tax Credits, the donor must not only convey land or an interest in land, but the donor must be a "taxpayer." For purposes of the Title of the Code of Virginia related to taxes, Va. Code § 58.1-1 defines "taxpayer" as every person, corporation, partnership, organization, trust or estate subject to taxation under the laws of this Commonwealth, or under the ordinances, resolutions, or orders of any county, city, town, or other political subdivision of this Commonwealth.
In 2002, the Virginia Attorney General determined that the term "taxpayer" includes any person, corporation, partnership, organization, trust or estate that is subject to any tax imposed by Virginia or a Virginia locality even if such person or entity is exempt from Virginia's income tax. See 2002 Att'y Gen. Ann. Rep. 094 and Public Document 05-125 (7/26/2005). Although the interpretation of the term "taxpayer" set forth by the Virginia Attorney General is broad as it relates to the entity being "subject to tax," it did not specifically extend the term to apply to persons or entities that are not within one of the categories provided in the definition of "taxpayer" set forth in Va. Code § 58.1-1. Because the definition of "taxpayer" set forth in Va. Code § 58.1-1 does not include a specific category for localities or political subdivisions of the Commonwealth, a locality would have to be considered a person, corporation, partnership, organization, trust or estate to be considered a "taxpayer" for Virginia tax purposes.
The General Assembly has specifically included governmental entities, including localities, in definitions used for other purposes in the Code of Virginia. For example, in Va. Code § 1-230, "person" includes any individual, corporation, partnership, association, cooperative, limited liability company, trust, joint venture, government, political subdivision, or any other legal or commercial entity and any successor, representative, agent, agency, or instrumentality thereof when defining the term generally for use throughout the Code of Virginia. Further, under Va. Code § 58.1-3952, "person" includes individuals, corporations, partnerships, the Commonwealth, and the Commonwealth's agencies and political subdivisions.
With the exception of the categories regarding governmental entities, Va. Code § 58.1-1 utilizes categories to define "taxpayer" substantially similar to those used define "person" for purposes of Va. Code §§ 1-230 and 58.1-3952. The inclusion of separate categories for governmental entities, including localities, in Va. Code §§ 1-230 and 58.1-3952 implies that the General Assembly does not consider such entities to be included within any of the other categories utilized in these statutes. Because localities may not be considered a person, corporation, partnership, organization, trust or estate, they are not taxpayers for Virginia tax purposes under Va. Code § 58.1-1. This conclusion is also supported by the fact that the Commonwealth and its political subdivisions are exempt from taxation under Article X, § 6(a) of the Virginia Constitution. County of York v. Peninsula Airport Commission, 235 Va. 477 (1988).
If the General Assembly had intended for localities to be considered "taxpayers" for any Virginia tax purposes, it could have done so explicitly by providing a category for localities within the definition of "taxpayer" set forth in Va. Code § 58.1-1. The General Assembly did not provide such category in Va. Code § 58.1-1 and, therefore, localities are not eligible to earn Land Preservation Tax Credits.
EDAs are Not Taxpayers for Virginia Tax Purposes
EDAs are governmental entities that are political subdivisions of localities. See Va. Code § 15.2-4903. Like localities, EDAs are not be included within any of the categories utilized in Va. Code § 58.1-1 to define "taxpayer." Therefore, EDAs are not eligible to earn Land Preservation Tax Credits.
For the foregoing reasons, neither the Localities nor their respective EDAs may earn Land Preservation Tax Credits. The Code of Virginia provisions cited, along with other reference documents, are available online in the Laws, Rules & Decisions section of the Department of Taxation's website, located at www.tax.virginia.gov. If you have additional questions, please contact ***** in the Office of Tax Policy, Policy Development Division, Development Division, at *****
Craig M. Burns