March 3, 2015
Re: Appeal of Final Local Determination
Locality: *****
Taxpayer: *****
Business Tangible Personal Property (BTPP) Tax
Dear *****:
This final state determination is issued upon the application for correction filed on behalf of ***** (the "Taxpayer") with the Department of Taxation. You appeal an assessment of BTPP tax issued by the ***** (the "County") for the 2014 tax year.
The BTPP tax is imposed and administered by local officials. Virginia Code § 58.1-3983.1 D authorizes the Department to issue determinations on taxpayer appeals of BTPP tax assessments. On appeal, a BTPP 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 & Decisions section of the Department's web site, located at www.tax.virginia.gov.
FACTS
The Taxpayer leased medication management systems to hospitals and other healthcare providers. The units at issue were used to distribute and manage medications and were controlled by a personal computer, including a monitor, keyboard and printer. Most of the units had multiple drawers where medications were stored, and some possessed auxiliary shelving.
The Taxpayer classified the units as computer equipment on its return of BTPP for the 2014 tax year. Under review, however, the County reclassified the units as furniture, fixtures, equipment, or tools and issued an assessment for additional BTPP tax due. The Taxpayer filed an appeal with the County. In its final determination, the County upheld its classification. The Taxpayer filed an appeal with the Tax Commissioner, contending that the units should have been classified as computer equipment.
ANALYSIS
Business tangible personal property is subject to local taxation. Virginia Code § 58.1-3506 established separate classifications for certain items, including "programmable computer equipment and peripherals employed in a trade or business." See Va. Code § 58.1-3506 A 27. The terms "programmable computer equipment" and "peripherals" are not defined for purposes of the BTPP tax.
Rapid advancements in technology since the introduction of computers as a separate class of property means that the types of tangible personal property that could be considered programmable computer equipment and computer peripherals are constantly changing. In addition, the classification of an item of tangible personal property is a question of fact, and a taxpayer must provide sufficient evidence to prove that a locality's classification was incorrect. See Public Document (P.D.) 10-103 (6/18/2010).
The Taxpayer contends that the units should have been classified as computer equipment because computers were required for their operation. The Taxpayer states that each unit was controlled by a computer, all of the components were integrated and completely dependent on commands from the computer and the drawers were inoperable without the use of the computer.
In P.D. 10-103, the locality argued that many devices that use substantial computing power to operate are not considered to be programmable computers. Instead the overall function of an item of equipment, when considered as a whole, must be considered in determining its classification for BTPP purposes. The Department found that the locality conducted a thorough examination and extensive research on every piece of equipment, and there was no evidence to prove the locality's classification was erroneous.
In the Taxpayer's case, the units consisted of computer and peripheral components integrated with other non-computer components, resulting in a medication distribution system. It appears that the County would have considered classifying the units as computer equipment, at least in part, had the Taxpayer been able to show that the computer components could have been reprogrammed and used separate from their units. However, no such evidence has been presented.
DETERMINATION
As stated above, a locality's assessment is deemed prima facie correct, meaning the assessment will stand unless the taxpayer proves it is incorrect. After reviewing all the information provided, it is my determination that the Taxpayer has not met its burden of proving that the County's classification was incorrect in this case. Accordingly, the assessment is upheld.
If you have any questions regarding this determination, you may contact ***** in the Office of Tax Policy, Appeals and Rulings, at *****.
Sincerely,
Craig M. Burns
Tax Commissioner
AR/1-5859618356.M