Rulings of the Tax Commissioner

November 23, 2021

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 “Taxpayer”) with the Department of Taxation. The Taxpayer appeals the assessment of business tangible personal property (BTPP) tax issued to it by ***** (the “City”) for the 2016 through 2019 tax years.

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 documents cited are available on-line in the Laws, Rules and Decisions section of the Department’s web site, located at www.tax.virginia.gov. 

FACTS

The Taxpayer purchased tangible personal property from a business located in the City in 2015 and filed a declaration of the tangible property it acquired from the predecessor business for the 2016 tax year. The Taxpayer valued the items it purchased based on its research of fair market value for used personal property. The City audited the Taxpayer and concluded that the original cost to the predecessor owner of the tangible property at issue should have been used when determining the value of the property for purposes of the BTPP tax. Accordingly, assessments of BTPP tax were issued for the 2016 through 2019 tax years. 

The Taxpayer appealed the assessments to the City, contending that the property should be valued based on the cost it paid to acquire it. The City’s final local determination held that business tangible property must be valued based on the cost when it was purchased by the initial owner. The Taxpayer filed an appeal with the Department asserting that the value of the business tangible property should be based on the amount it paid to acquire it. The Taxpayer also objects to the City’s refusal to provide a detailed listing of the assets on which the City based its assessments.     

ANALYSIS

Valuation

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 18 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 17 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 contends that original cost is the cost of the tangible property purchased from an original owner provided such sale is at arm’s length. The City asserts that original cost is the cost of the tangible property to the original owner. The Taxpayer asserts that this interpretation of original cost should only apply to transactions such as the forced bankruptcy sale described in Attorney General Opinion 14-018 (6/26/2014) that are not conducted as arm’s length. The Department has carefully reviewed this opinion again and found that the conclusions reached therein were a matter of statutory interpretation, not limited to any particular facts. The Taxpayer is correct, however, that any property described by Virginia Code § 58.1-3503 A 16 would be valued at the original cost to the taxpayer specifically or such other method that may reasonably expected to determine the actual fair market value. See id. 

Original cost means “[a]n asset’s net price; the original cost of an asset. Also termed historical cost, original cost.” Black’s Law Dictionary 371 (Eighth Edition 2004). Based on this reasoning, the original cost refers to the original price of an asset purchased new. Thus, the original total capitalized cost is the cost of the tangible property paid by the owner who first purchased the property as capitalized, not the costs paid by any subsequent purchasers. See Op. Va. Att’y Gen (8-109), P.D. 12-27 (3/6/2012), P.D. 13-20 (2/15/2013), P.D. 16-171 (8/29/2016) and Attorney General Opinion 14-018.

Property Subject to Tax

The Taxpayer contends that the City denied its request for a detailed listing of its predecessor’s assets so the Taxpayer could determine what assets acquired from its predecessor were subject to the BTPP tax. The Department lacks the authority to order localities to provide a list of taxable tangible property to taxpayers. The Taxpayer, however, may consider requesting the seller to authorize disclosure of its records.

DETERMINATION

In accordance with the Department’s and Attorney General’s policy, I find that the term “original cost” when determining fair market value of tangible personal property employed in a trade or business means the amount the original purchaser paid the manufacturer or dealer for the property. Accordingly, the City was correct in utilizing the cost of the tangible property paid by the Taxpayer’s predecessor in valuing the tangible property at issue for purposes of the BTPP tax. 

I am remanding the case back to the City, however, in order for it to work with the Taxpayer to determine specifically what tangible property was subject to the BTPP tax for the 2016 through 2019 tax years and to adjust the assessments accordingly. For example, it is possible, as the Taxpayer contends, that not all of the property previously reported by the seller was acquired by this Taxpayer. The fact that the City assigned an original cost value for the property at issue far in excess of the acquired cost reported by the Taxpayer raises questions as to whether the City and the Taxpayer were valuing the same property. If the City possesses records pertaining to the seller’s property, the City should be able to match up the original cost of such property to the items the Taxpayer possessed during the audit period. Alternatively, the Taxpayer could submit a new bona fide independent appraisal covering each of the items at issue for the City’s consideration. Once the City has finished its review, the City must issue a new final local determination. The Taxpayer will then have 90 days from the date of the determination to file an appeal with the Department, if it disagrees with the outcome.

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/3800.B