December 28, 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 assessments of business tangible personal property (BTPP) tax issued to it by ***** (the “County”) for the 2018 and 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 Department has addressed the appeals of BTPP tax issued to the Taxpayer by the County on three prior occasions. See Public Document (P.D.) 18-167 (9/26/2018), P.D. 18-212 (12/18/2018) and P.D. 19-111 (9/27/2019). In P.D. 19-111, the Department remanded the case to the County, at the County’s request, so the County could address new issues and issue a new final local determination with respect to the 2018 tax year. While that review was pending, the County also issued an assessment for the 2019 tax year, which the Taxpayer appealed to the County. When the County did not issue a final local determination as to either tax year within a year, the Taxpayer filed a notice with the County that it intended to file an appeal with the Department. The Taxpayer subsequently filed the appeal, contending that all of its business tangible property located in the County was exempt from BTPP taxation because it was a manufacturer.
ANALYSIS
Jurisdiction
A taxpayer may file an appeal with the Department if its appeal with the locality has been pending for more than one year and it provides the locality with at least 30 days written notice. See Virginia Code § 58.1-3983.1 B 6.
On September 29, 2019, the Department remanded the Taxpayer’s appeal back to the County at its request in order for it to address new issues and to issue a final local determination as to the 2018 tax year. See P.D. 19-111. On November 22, 2019, the Taxpayer appealed the 2019 BTPP tax assessment to the County. No final local determination was issued in either case. On November 25, 2020, the Taxpayer filed notice that it intended to file an appeal of the 2018 and 2019 BTPP tax assessments with the Department because more than one year had passed and no final local determination had been issued. The Taxpayer filed the appeal on March 22, 2021, with the Department, contending that all of its business tangible property located in the County was exempt from BTPP taxation because it was a manufacturer. As permitted by Virginia law, the Department has jurisdiction to address the Taxpayer’s appeal because no final local determinations have been issued.
Manufacturing
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. Included in the category of tangible property that is declared intangible and subject to state taxation only is “[c]apital which is personal property, tangible in fact, used in manufacturing (including, but not limited to, furniture, fixtures, office equipment and computer equipment used in corporate headquarters) . . . .” See Virginia Code § 58.1-1101 A 2.
The machinery and tools, motor vehicles and delivery equipment of a manufacturing business are not defined as intangible personal property. Such property is to be taxed locally as tangible personal property. Virginia has elected to create a separate classification of tangible personal property for machinery and tools used in manufacturing. Virginia Code § 58.1-3507 A also provides:
Machinery and tools ... used in a manufacturing ... business shall be listed and are hereby segregated as a class of tangible personal property separate from all other classes of property and shall be subject to local taxation only.
In P.D. 18-167 (9/26/2018) and P.D. 18-212 (12/18/2018), the County did not contest that the Taxpayer was a manufacturer for the 2014 and 2017 tax years respectively. Rather, its position was that the Taxpayer was subject to the BTPP tax because its operations in the County were a separate line of business from the manufacturing operations. The Department determined in these two cases that the evidence showed that the Taxpayer’s operations supported its manufacturing activities, and therefore the business tangible property was not subject to the BTPP tax even though no manufacturing actually occurred in the County.
After the issuance of P.D. 19-111, the County sent an extensive questionnaire to the Taxpayer. The County now argues in response to the Taxpayer’s current appeal to the Department that the answers to the questionnaire create doubt as to whether the Taxpayer was a manufacturer. The County, however, did not issue any further determinations as a result of its analysis. The County now believes based on responses to the questionnaire that the Taxpayer was a service provider rather than a manufacturer. The Taxpayer has responded with further explanations to address the County’s assertions.
DETERMINATION
In P.D. 18-167 and P.D. 18-212, the Department determined that the business tangible property located at the Taxpayer’s definite place of business unrelated to the IT and cell center services for the government agency was not subject to the BTPP tax. No evidence has been provided to show that the Taxpayer’s operations changed in any meaningful way after the tax years at issue in P.D. 18-167 and P.D. 18-212, other than the IT and call center service equipment being removed from the facility in August 2018.
Information provided by the Taxpayer indicates that assets related to the IT and call center services for the government agency contract were consistently separately accounted for assessment purposes. Further, the Taxpayer states that such asserts were removed from the facility in August 2018 at the conclusion of the contract. All other asserts in the facility were not subject to the BTPP tax. I am therefore remanding this case to the County with the instruction to remove any assets that were not specifically dedicated to the government agency contract from the list of taxable tangible personal property and adjust the assessments accordingly.
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/3775.B