December 20, 2017
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 ***** (the “Taxpayer”) with the Department of Taxation. The Taxpayer appeals the assessment of business tangible personal property (BTPP) tax issued to it by the ***** (the “City”) for the 2017 tax year.
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 tax 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 document cited are available on-line in the Tax Policy Library section of the Department's web site, located at www.tax.virginia.gov.
FACTS
The Taxpayer was a professional practice that operated out of the owner's home office in the City. The Taxpayer filed its 2017 BTPP return with the City and discounted the original cost of its BTPP proportionately to the amount of time the owner claimed the property was devoted to personal, rather than business, use.
The City adjusted the return and issued an assessment based on a percentage of the BTPP's original cost, without deduction. The Taxpayer appealed to the City, contending that the City did not provide a sufficient justification for refusing to accept its valuation methodology.
In its final determination, the City concluded that a business cannot calculate its own use percentage and apply that to the City's depreciation schedule to further reduce the taxable value of BTPP. The Taxpayer appealed to the Department, contending that the City failed to justify why the Taxpayer should not be allowed to apportion the property between BTPP and household goods and effects based on the percentage of time the property was devoted to each use.
ANALYSIS
All tangible personal property, unless declared intangible under the provisions of Virginia Code § 58.1-1100 et seq., is reserved for local taxation by Article X, § 4 of the Constitution of Virginia. Article X, §§ 1 and 2 of the Constitution of Virginia provide that all property, unless specifically exempted within the provisions of the Constitution, shall be taxed at a uniform rate among classes, and that “all assessments of real estate and tangible personal property shall be at their fair market value to be ascertained as prescribed by general law.” This provision of the Constitution contains the presumption that the General Assembly's prescribed valuation method will both standardize valuation practices across all the local governments in the Commonwealth and result in something approximating fair market value. Virginia Code § 58.1-3103 specifically charges local commissioners with the responsibility of assessing property at fair market value.
As part of his duties each commissioner of the revenue shall ascertain and assess, at fair market value, all subjects of taxation in his county or city on the first day of January in each year, except as otherwise provided by law. [Emphasis added.]
Fair market value is generally defined as the price a property will bring when offered by one who desires, but is under no obligation, to sell it, and the buyer has no immediate necessity to purchase it. See Tuckahoe Women's Club v. County of Richmond, 119 Va. 734, 101 S.E.2d 571 (1958). If the valuation methodology employed by a locality results in an assessment well above fair market value, the locality may use another methodology prescribed in Virginia Code § 58.1-3507 B. See Public Document (P. D.) 05-129 (8/3/2005).
Virginia Code § 58.1-3503 A 17 specifies that for most items of tangible personal property, fair market value is to be ascertained either by a percentage or percentages of original cost, or in the case of trucks and cars and certain other vehicles, by means of recognized pricing guides. Further, this statute stipulates:
Methods of valuing property may differ among the separate categories, so long as each method used is uniform within each category, is consistent with requirements of this section and may reasonably be expected to determine actual fair market value as determined by the commissioner of revenue or other assessing official . . .
In attempting to achieve property valuations that reasonably approximate fair market value, the General Assembly has statutorily prescribed different methodologies for use in the valuation of different classifications of property. The method of valuation to ascertain the fair market value of tangible personal property employed in a trade or business (other than items described in subdivisions 1 through 16 of Virginia Code § 58.1-3503 A) is set forth in Virginia Code § 58.1-3503 A 17.
All tangible personal property employed in a trade or business . . . shall be valued by means of a percentage or percentages of original cost. [Emphasis added.]
The Taxpayer believes its BTPP should be reduced in value proportionately to the amount of time the property was devoted to the owner's personal use. As stated above, an assessment of BTPP tax is deemed prima facie correct, meaning a taxpayer must prove it is incorrect. The Taxpayer has cited no statute, regulation, court case or other authority that permits it to reduce the value of BTPP in the manner sought. The City assessed the property as a percentage of original cost as it is directed to do by statute.
DETERMINATION
The Taxpayer has the burden of proving that the City's assessment is incorrect. The Taxpayer has not provided any authority that indicates it is permitted to reduce the value of BTPP proportionately to the amount of time such property was devoted to an owner's personal use. Therefore, the City's assessment stands.
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/1417.M