April 28, 2022
Re: Notice of Jurisdiction
Taxpayer: *****
Locality Assessing Tax: *****
Business Tangible Personal Property (BTPP) Tax
Dear *****:
This notice of jurisdiction is issued upon the application for correction filed by you on behalf of ***** (the “Taxpayer”), with the Department. The Taxpayer appeals the partial denial of refunds of Business Tangible Personal Property (BTPP) tax by ***** (the “County”) for the 2017 through 2019 tax years.
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 at www.tax.virginia.gov in the Laws, Rules and Decisions section of the Department’s web site.
FACTS
The Taxpayer operated open pit quarry mines in the County. It also had mining operations in other Virginia localities and in ***** (State A). The Taxpayer filed amended BTPP tax returns for the 2017 through 2019 tax years, claiming it was only subject to the Machinery and Tools (M&T) tax on machinery and tools used in its mining operations and that all other assets were exempt from local property taxation. Based on a site visit, the County issued a letter to the Taxpayer concluding that it was a processor and all of its equipment not used in mining was subject to the BTPP tax. As such, the County removed the mining equipment from the Taxpayer’s returns and issued partial refunds. The Taxpayer appealed to the Department, contending that it is due the remaining refunds because it was not subject to BTPP tax as a mining operation.
ANALYSIS
The Department has re-examined the policy that when a locality receives a refund request from a taxpayer for local business taxes applicable to the Department under Virginia Code § 58.1-3983.1, the locality as the discretion to simply deny the request of issue a final determination appealable directly to the Department. See Public Document (P.D.) 11-124 (7/1/2011). On June 9, 2021, the County issued a letter in response to the Taxpayer’s amended returns. A local appeal, however, had not been filed. Amended returns or refund claims seeking to correct mistakes in a taxpayer’s own filings are not appeals. In fact, this letter was effectively the County’s response to the audit it conducted to verify the Taxpayer’s refund claim. Once issued, this response constituted an assessment by the County, appealable by the Taxpayer under Virginia Code § 58.1-3980 or § 58.1-3983.1.
In a self-reporting tax system, taxpayers have the initiative to report their tax liabilities based on the applicable tax law and the relevant facts and circumstances as they exist. A refund claim initiated by a taxpayer who believes it made mistakes in its original filing is still a part of this self-reporting process. Based on the analysis above, the Department is inclined to clarify its policy to say that when a locality receives a refund claim based on errors a taxpayer believes it previously made, the locality has the discretion to 1) simply grant the request, consistent with the self-reporting nature of the system; or 2) perform a verification process, such as an audit. Should the locality choose to perform a review, fundamental due process requires that the taxpayer be informed of the results of that review, and if the claim is denied in whole or in part, also be informed of the reasons for such denial.
Should a locality be given the discretion to proceed directly to issue a final determination in response to a refund claim, there is a risk that audit responses will be passed off as final local appeal determinations, circumventing the spirit and policy of having a local appeals process. Such a procedure is not permitted when localities choose to conduct audits not involving refund claims, so the procedure should be no different for audits conducted to verify refunds. In each case, the goal is to establish the taxpayer’s correct tax liability. The local appeals process affords taxpayers another opportunity to present facts and legal analysis that they or the locality may not have had the opportunity to consider during the audit process. Further, the local appeals process should also afford taxpayers the opportunity to have their case re-examined by senior management at the local level, all the way up the chief assessing officer, usually a local Commissioner of the Revenue. Such supervisory oversight acts as a check and balance on the process.
Therefore, once a taxpayer receives a response from a locality indicating that their refund claim has been denied in whole or in part, the taxpayer may proceed to file a local appeal under Virginia Code § 58.1-3980 or § 58.1-3983.1. This procedure is also in accord with the BPOL appeals process which treats denied refunds as appealable events that trigger a taxpayer’s right to file a local appeal. See Virginia Code § 58.1-3703.1 5 a.
DETERMINATION
In this case, the County issued a response to the Taxpayer’s filing of amended BTPP returns to claim refunds and the Taxpayer appealed to the Department. The Taxpayer, however, must first submit an appeal to the County. The County must then thoroughly review and address any and all facts and arguments presented by the Taxpayer and issue a final determination, which the Taxpayer may then appeal to the Department under Virginia Code § 58.1-3983.1 if it still disagrees with the outcome.
To the extent any previous ruling, including P.D. 11-124 and P.D. 19-62 (6/17/2019) can be interpreted to allow localities to combine a denial of a refund with a local final determination, this determination supersedes and nullifies such interpretations. The analysis as set forth in this determination will govern the local appeals process as it relates to refund claims of local mobile property tax and local business taxes over which the Department has appeals jurisdiction. Further, the Department will apply the same standard to refund claims for Business, Professional and Occupational License (BPOL) tax eligible for appeals under Virginia Code § 58.1-3703.1.
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/3940.B