July 6, 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 though 2018 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 document 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 was the owner’s association of a timeshare condominium (the “Building”) located in the City. Individuals purchased either an annual or biennial co-tenancy interest in fee simple in one of the units in the Building. Each unit was furnished by the Taxpayer. A small percentage of units owned by the Taxpayer were rented to the public.
The City audited the Taxpayer for the 2016 through 2018 tax years and assessed BTPP tax for the furnishings located in the individual units. The Taxpayer appealed to the City, raising a number of objections to the assessment. The City issued a final determination, concluding that the furnishings located within each unit were owned by the Taxpayer and thus subject to the BTPP tax. Accordingly, the assessments were upheld. The Taxpayer appealed to the Department, contending that the unit owners should be considered the true owners of the furniture.
ANALYSIS
Tangible Personal Property
Virginia Code § 58.1 3500 defines tangible personal property as “all personal property not otherwise classified by (i) § 58.1 1100 as intangible personal property, (ii) § 58.1 3510 as merchants’ capital or (iii) § 58.1-3510.4 as short-term rental property. Such tangible personal property is hereby segregated for and made subject to local taxation only pursuant to Article X, Section 4 of the Constitution of Virginia.”
Virginia Code § 58.1 3503 provides for the general classification of tangible personal property. Under this section, certain tangible personal property is classified for valuation purposes by separate categories that are not, however, to be considered separate classes for rate purposes. Virginia Code § 58.1 3503(B) notes that the methods of valuing property may differ among the separate categories, so long as each method used is uniform within each category. Included among the 20 enumerated categories are properties employed in a business, and household goods and personal effects, except as exempted under Virginia Code § 58.1 3504.
In Public Document (P.D.) 04-19 (6-01-2004), the Department determined that furniture owned by the owner’s association of a timeshare condominium and used in timeshare units did not qualify for the exemption for household goods under Virginia Code § 58.1-3504 but rather was subject to BTPP tax as tangible personal property employed in a trade or business. The Taxpayer concedes that it owned the furniture at issue, but urges the Department to revisit the determination made in P.D. 04-19 on a number of grounds, each of which will be addressed in turn.
Federal Income Tax Returns
The Taxpayer asserts that it was not required to depreciate the furniture for federal income tax purposes. The local BTPP tax, however, is separate and distinct from income tax and governed by a different legal framework. In this case, whether the furniture was depreciable or not for federal income tax purposes had no bearing on its classification as tangible personal property employed in a trade or business for BTPP tax purposes.
Household Exemption
The Taxpayer refers to a 2014 amendment to the exemption for household goods set forth in Virginia Code 58.1-3504. As the Department observed in P.D. 04-19, the exemption required that the property be “owned and used by an individual or by a family or household incident to maintaining an abode.” Although H.B. 589 (2014 Acts of Assembly, Chapter 279) added the word “primarily” before “incident to maintaining an abode,” this addition makes no difference to the outcome because the fact remains that the timeshare owners who used the units as an abode did not own the furniture.
Responsibility for Loss
The Taxpayer points out that if an owner or guest destroyed the furniture, they were responsible for replacing it, not the Association. While this may be how the Taxpayer and the owners agreed to handle the destruction of property, it had no bearing on the Taxpayer’s legal ownership of the furniture.
Rental Business Property
The Taxpayer asserts that the furniture was only occasionally used for rentals. The taxpayer in P.D. 04-19 also argued that it did not hold property solely for rentals. Acting as a rental agent on behalf of the timeshare owners was one of the ways in which the taxpayer in P.D. 04-19 was “doing business.” The taxpayer did business in other ways as well, such as maintaining the building and selling vacant unit weeks. The furniture in this case did not have to be exclusively or even primarily used in a rental business in order to be subject to BTPP tax. The question is whether it was employed in a trade or business generally.
Nonprofit Entities
The Taxpayer observes that it did not qualify for relief under the Paycheck Protection Program (PPP) as a nonprofit entity. The Taxpayer complains that it is treated as a business for tax purposes when it is convenient, but not when it could get a benefit. While I empathize with the Taxpayer's frustration, the PPP was a federal program, the Taxpayer’s eligibility for which has no bearing on a local property tax matter.
Condominium Sales Business
The Taxpayer explains that it did not engage in the sale of unit weeks that were without owners. Although the taxpayer in P.D. 04-19 did engage in such sales as to a very small percentage of available units, that fact alone did not determine the outcome of that case. Similar to the answer above, the furniture did not have to be owned and used by a taxpayer who was selling unit weeks in order to be subject to taxation. Reference must be made to all of the facts and circumstances of a case to determine whether property was employed in a trade or business.
Amending Association Agreements
Finally, the Taxpayer contends that some localities have allowed timeshare owner associations to amend their governing documents so that they are not liable for BTPP tax. It asserts that the City has not given it the same opportunity. The Department has the authority to address the appeal of local tax assessments. See Virginia Code § 58.1-3983.1 D 1. It does not have the authority to order Commissioners of Revenue or other taxing officials to allow taxpayers to amend legal documents.
DETERMINATION
Based on the facts presented, it appears that the Taxpayer was at a minimum in the business of operating the Building and sometimes acting as a rental agent on behalf of the timeshare owners. According to the governing documents, all the furniture in the units was the property of the Taxpayer, not the owners. Such furniture falls under the classification of tangible personal property employed in a trade or business and is subject to the BTPP tax. As such, the assessment of BTPP tax for the 2016 through 2018 tax years is upheld.
If you have any questions regarding this determination, you may contact ***** in the Office of Policy and Administration, Appeals and Rulings, at *****.
Sincerely,
Craig M. Burns
Tax Commissioner
AR/3676.B