VIRGINIA:
IN THE CIRCUIT COURT OF ARLINGTON COUNTY
JOSEPH RICHARD AZAR,
)
Petitioner ) CL16-1910
)
v. )
VIRGINIA DEPARTMENT OF TAXATION,
BY AND THROUGH ITS COMMISSIONER
CARIG M. BURNS, Respondent.
FINAL ORDER
THIS MATTER came before the Court on Petitioner Joseph Richard Azar's Petition for Declaratory Judgment, the Answer of the Virginia Department of Taxation (“Department”), by and through the Office of the Attorney General, upon supplemental briefs filed by the parties, upon the record, and upon argument by Mr. Azar and the Assistant Attorney General.
UPON CONSIDERATION WHEREOF, for the reasons as contained in the Court's Memorandum Opinion dated June 30, 2017; it is hereby
ORDERED that the Mr. Azar's Petition for Declaratory Judgment be and is hereby dismissed, as the three (3) year limitations period in Va. Code § 58.1-499(D) applies to a taxpayer's request to apply an overpayment of income taxes as a credit to a separate income tax liability; and the parties shall file any exceptions to this Order within eleven (II) calendar days;
and this Order is final.
IT IS SO ORDERED.
ENTERED ON THIS 30TH DAY OF JUNE 2017.
Daniel S. Fiore, II, Judge
Circuit Court of Arlington County
Signatures of the parties are dispensed with pursuant to Rule 1:13. A copy of this Order will be mailed to the parties.
VIRGINIA:
IN THE CIRCUIT COURT OF ARLINGTON COUNTY
JOSEPH RICHARD AZAR,
Petitioner )
)
v. ) CL16-1910
)
VIRGINIA DEPARTMENT OF TAXATION,
BY AND THROUGH ITS COMMISSIONER,
CRAIG M. BURNS,
Respondent.
MEMORANDUM OPINION
This matter came before the Court on Petitioner Joseph Richard Azar's Petition for Declaratory Judgment, the Answer filed on behalf of the Virginia Department of Taxation (“Department”), by and through the Office of the Attorney General, and upon argument by Mr. Azar and the Assistant Attorney General.
The issue before the Court is whether the General Assembly intended a distinction between a tax credit and a tax refund when it enacted Va. Code § 58.1-499(D). This issue arose when the Department denied Mr. Azar's request to apply an overpayment of his income tax for the 2011 tax year to his 2012 tax year obligation. The denial was based on the Department's reliance on the statute of limitations affecting refunds under Va. Code § 58.1-499(D).[1]
Mr. Azar filed his taxes for years 2011, 2012, and 2013 on June 29, 2015, after he had previously made quarterly payments for and during all tax years in question. While he made all of his tax payments during the given tax years, he failed to file tax returns on time. When on June 29, 2015 he filed all three late returns for 2011, 2012, and 2013, they showed overpayments for each year: 2011 ($1,105.00), 2012 ($2,398.00), and 2013 ($4,033.00) based on his prior quarterly payments. Pet'r's Pet. For Decl. J. 3. Each tax return for 2011, 2012, and 2013 showed overpayments, respectively, on Line 27, “Amount of overpayment you want credited to next year's estimated tax.” Id. Mr. Azar did not request a refund for these tax years. Instead, he requested that his overpayments be applied to subsequent tax years. In other words, he applied the 2011 overpayment ($1,105.00) to his 2012 tax liability, resulting in the 2012 overpayment ($2,398.00) being applied to his 2013 liability, and the resulting 2013 overpayment ($4,033.00) applied to his 2014 tax liability. The Court notes the cascading effect of that process.
The Department denied Mr. Azar's request to apply the overpayment from tax year 2011 to the tax year 2012 because the limitations period to make the claim for the $1,105.00 expired. Va. Code § 58.1-499(D) provides that no refund shall be made for any overpayment, “whether on discovery by the Department or on written application of the taxpayer, if such discovery is not made or such written application is not received within three years from the last day prescribed by law for the timely filing of the return.”. Since his request for the 2011 $1,105.00 overpayment be credited to the 2012 obligation was made on June 29, 2015, more than three (3) years from the date (May 1, 2012) his 2011 tax return was due, his claim was denied as time barred.
Mr. Azar appealed the denial to the Department's Office of Tax Policy. When it was denied, he requested reconsideration by the Tax Commissioner that also was denied. See Rulings of the Tax Commissioner, Public Document 15-252 (December 28, 2015) (finding that the language of Va. Code § 58.1-499 that applies to refunds also applies to overpayments); Rulings of the Tax Commissioner, Public Document 16-82 (May 16, 2016) (finding that an overpayment and a refund are “functionally equivalent” under Va. Code § 58.1-499.). Mr. Azar then appealed the Tax Commissioner's decision to this Court under Va. Code. § 58.1-1825.
The Court finds that this matter is properly before the Court upon the question whether the statute of limitations was intended by the Virginia General Assembly to apply to a credit of an overpayment versus a refund of that overpayment. Unless a statute is ambiguous or if applying the plain language of the statute would lead to an absurd result, the Court, when interpreting the statute, applies the plain language of a statute. Boynton v. Kilgore, 271 Va. 220, 227 (2006). To avoid a manifest absurdity or to address an ambiguity, however, the Court will ascertain and give effect to the intention of the legislature. Id.
Virginia income taxes are due “on or before May 1 of each year.” Va. Code § 58.1-341. Taxes for the year 2011 were due by May 1, 2012, and the latest a refund of an overpayment could be requested is three years after the due date. Va. Code § 58.1-499. The Commonwealth agrees that the petitioner did not ask for a refund but argues that the Department's interpretation of the Code is correct in that the law regarding refunds applies to any overpayment.
Virginia Code § 58.1-499 provides for refunds to individual taxpayers and it also provides for overpayment credits against tax for ensuing years. The statutory interpretation of a statute is a question of law. Conyers v. Martial Arts World of Richmond, Inc., 273 Va. 96, 104 (2007). “When the language of a statute is unambiguous, [the Court is] bound by the plain meaning of that language.” Id. If a statute has more than one interpretation, the Court will “apply the interpretation that will carry out the legislative intent behind the statute.” Id. Statutory language is construed “in the context of the entire statute.” Blake v. Commonwealth, 288 Va. 375, 383 (2014). Courts will resolve inconsistencies in a statute “to give effect to the General Assembly's intent without usurping ‘the legislature's right to write statutes.’” Id. (citing Parker v. Warren, 273 Va. 20, 24 (2007) (internal quotes omitted)).
Unless otherwise provided, state taxes collected under the provisions of this Code are paid into the general fund of the state treasury. Va. Code § 58.1-13. A refund is defined as the “return of money to a person who overpaid.” Refund, Black's Law Dictionary (9th ed. 2009). In the case of an overpayment by the taxpayer, the Tax Commissioner shall order a refund of the amount of the overpayment. Va. Code § 58.1-499(A). That refund is paid out of the state treasury. Id. When the annual tax return of an individual taxpayer indicates that he has overpaid the income tax for that year, the amount of an overpayment may be applied by the taxpayer to ensuing years or otherwise refunded. Va. Code § 58.1-499(C). In either event, the taxpayer claims the overpayment, while deciding in which form he or she will receive it; by check or credit.
The purpose of a statute that limits the time period within which a party may make a claim, is to afford a reasonable period of time, as a legislature shall determine, before material evidence dissipates. See Locke v. Johns-Manville Corp., 221 Va. 951, 957 (1981) (noting that the nature and purpose of a statute of limitations is to “require prompt assertion of an accrued right of action.”); Caudill v. Wise Rambler, Inc., 210 Va. 11, 13 (1969); Street v. Consumers Mining Corp., 185 Va. 561, 575 (Va. 1946) (statute of limitations require action within a reasonable time); Templeman's Adm 'r v. Pugh, 102 Va. 441, 444-5 (1904) (statutes of limitations are based on sound public policy); see also Gould v. U.S. HHS, 905 F.2d 738, 746 (4th Cir. 1990); Smithfield Packing Co. v. Dunham-Bush, Inc., 416 F.Supp 1156, 1161 (E.D. Va. 1976) (statutes of limitations “were designed to prohibit assertion of stale or fraudulent claims after the dimming of memories and the absence of witnesses.”). A claimant is entitled to allow his or her right of claim to lapse.
Here, Azar creates an overpayment of his 2013 tax liability (for credit to his 2014 tax liability) by applying his 2012 overpayment that he created by applying the 2011 overpayment to his 2012 liability. In doing so, the reasonable time for material evidence not to dissipate surrounding his 2011 tax liability passed. To permit such a process would be to apply form over substance. See Judicial Inquiry & Review Comm 'n of Va. V. Elliott, 272 Va. 97, 120 (2006); Johnson v. Buzzard Island Shooting Club, Inc., 232 Va. 32, 37 (1986). Virginia Beach Bd. of Realtors, Inc. v. Goodman Segar Hogan, Inc., 224 Va. 659, 663 (1983). Clearly, the Virginia General Assembly intended taxpayers to act within a defined period of time in order to recover an overpayment of taxes. “The maxim of noscitur a sociis provides that the meaning of doubtful words in a statute may be determined by reference to their association with related words and phrases.” Cuccinelli v. Rector & Visitors of the Univ. of Va., 283 Va. 420, 432 (2012). There is no effective difference to a taxpayer's claim for recovery by requesting a check or a credit, and Azar has shown none. In other words, there is no logical distinction between the taxpayer receiving a return of an overpayment by check or application of that overpayment to a liability. Either way, the taxpayer's claim to the funds is effectuated. Thus, the Court finds that the three (3) year statute of limitations in Va. Code § 58.1-499 was intended to limit a taxpayer from applying an overpayment more than three (3) years from the filing date of the income tax return in which that overpayment arose. The overpayment credit is, therefore, subject to the three (3) year limitations passed by the Virginia General Assembly.
The Court is vested with the responsibility to interpret a statute that avoids a manifest absurdity by giving effect to the intention of the General Assembly. As an overpayment can be a refund or a credit, the two serve the same purpose where the taxpayer receives something of value, to wit: a monetary payment or an ability to reduce tax liability in the ensuing year. Resp't Br. 4. The effect is the same: the taxpayer is able to use for his or her benefit a previously made overpayment. The General Assembly did not intend for a taxpayer to effectively carry overpayment credits forward indefinitely; essentially bypassing the period of limitations for a refund by creating or taking advantage of a cascading effect. Reaching back in time, after a refund is barred, by making it a credit within the three (3) year limitations period would result in an absurdity that was not the intention of the General Assembly. The Court will “apply the interpretation that will carry out the legislative intent behind the statute.” Conyers, 273 Va. 96 at 104. The overpayment credit is, therefore, subject to the three (3) year limitations period passed by the Virginia General Assembly.
Another basis for declaring the credit subject to the three year limitations period, is the Department's argument that Va. Code § 58.1-499 is ambiguous because it refers to “overpayments as both refunds and credits simultaneously within the same statute.” Resp't Br. 3. “An ambiguity exists when the language is difficult to comprehend, is of doubtful import, or lacks clearness and definiteness.” Brown v. Lukhard, 229 Va. 316, 321 (1985). Here, an ambiguity exists when “determining the relevant period of limitations as it applies to overpayment refunds and credits.” Resp't Br. 3. The Court is now called upon to do no more than ascertain the will of the legislature. Lucy v. County of Albemarle, 258 Va. 118, 129 (1999). Considering the purpose of the entire statute and the effect of its terms, the Court finds that the will of the legislature was to limit a taxpayer's claim for a return, in whatever form, of an overpayment and to do so by requiring a claim within the identifiable three (3) year period based on sound public policy for which the limitations was enacted. Therefore, for these separate reasons, the three (3) year statute of limitation applies to overpayments intended to be a tax credit. Mr. Azar's overpayment of $1,105 for the tax year 2011 should not be applied to the ensuring years as it is time barred.
June 30, 2017
Daniel S. Fiore, II, Judge
Circuit Court of Arlington County
[1] Va. Code § 58.1-499(D). No refund under this section, however, shall be made for any overpayment of less than one dollar except on special written application of the taxpayer, nor shall any refund of any amount under this section be made, whether on discovery by the Department or on written application of the taxpayer, if such discovery is not made or such written application is not received within three years from the last day prescribed by law for the timely filing of the return , or within sixty days from the final determination of any change or correction in the liability of the taxpayer for any federal tax upon which the state tax is based, whichever is later.