Document Number
90-72
Tax Type
General Provisions
Description
PADLOCKING PREMISES
Topic
Collection of Delinquent Tax
Date Issued
04-01-1990
GENERAL PROVISIONS

VR 630-1-1805.1
PADLOCKING PREMISES


§ 1. Definitions.

The following words and terms, when used in this regulation, shall have the following meaning unless the context clearly indicates otherwise:

"Business enterprise" means the location at which a person is engaged in an activity requiring the registration, collection, withholding, or payment of a tax administered by the Department of Taxation.

"Department" means the Department of Taxation.

"Delinquent tax" means any amount of tax, penalty or interest, assessed by the Department of Taxation, which is not paid in full within 30 days after the date of assessment. No tax is considered delinquent while the Department of Taxation is considering a timely filed application for correction under § 58.11821 of the Code of Virginia.

"Padlock" means any act of physical restraint which makes the location of a business enterprise inaccessible to any person other than a person given permission to enter such premises by the Tax Commissioner.

"Tax Commissioner" means the chief executive officer of the Department of Taxation or his delegate.

§ 2. Determination of when padlocking is appropriate.

A. Required factors.

Prior to ordering the padlocking of a business enterprise, the Tax Commissioner first shall make the determination that such action is the appropriate remedy to force the collection of delinquent taxes. The Tax Commissioner must find that the following conditions are satisfied:

1. Minimum amount of tax delinquency. The aggregate amount of delinquent taxes owed by the business enterprise or the owner of such business enterprise must exceed $100. The aggregate amount of delinquent taxes shall include the total amount of delinquent taxes, penalties and interest owed by the business enterprise or the owner of the business enterprise. attributable to the business operations of the business enterprise to be padlocked.

2. Other collections actions. Padlocking may occur only after the Department of Taxation has attempted other methods of collecting the delinquent taxes. At a minimum, the following shall have occurred:

a) An assessment shall have been issued and mailed or delivered in accordance with the provisions of § 58.1-1820 of the Code of Virginia: and

b) A memorandum of lien shall have been filed in accordance with the provisions of Section A. of & 58.1-1805 of the Code of Virginia.

B. Additional factors which may be considered.

In addition to the requirements under subsection A, the following factors may be considered by the Tax Commissioner in determining whether padlocking is appropriate:

1. The effectiveness of prior collection actions, i.e., written requests for payment, telephone contacts, personal contacts and prior judicial orders.

2. The taxpayer's history of chronic delinquency and other conduct tending to hinder or delay the timely collection of taxes administered by the Department of Taxation as a factor in the determination of whether padlocking is appropriate.

3. Whether padlocking is appropriate to complement other actions. e.g., revocation of a dealer's certificate of registration to collect sales tax.

4. The likelihood that continued operation of the business enterprise may increase the amount of sales or withholding tax, collected from others and held in trust for the Commonwealth, which has not been paid over to the Department of Taxation.

5. The likelihood that padlocking the business enterprise of a delinquent taxpayer will adversely affect the business operations of other taxpayers whose businesses may share the same physical business location as the delinquent taxpayer.

§ 3. Notice of intent to padlock a business enterprise.

A. Notice.

If under the provisions of §2 of this regulation, the Tax Commissioner makes the determination that padlocking is an appropriate method of collecting delinquent taxes, the taxpayer must be so notified. Padlocking may not occur unless the following requirements are met:

1. A notice of the department's Intention to padlock is mailed to the last known address of the taxpayer or personally delivered to the taxpayer not less than 10 days prior to the date padlocking occurs.

2. Such notice must set out the amounts of delinquent taxes, the periods for which such taxes are delinquent, the types of taxes that are delinquent, and the date such taxes were first assessed by the Department of Taxation.

3. The notice must contain a brief statement explaining what action the Department of Taxation intends to take if the delinquent taxes are not paid or satisfactory arrangement is not made to pay such taxes and a brief statement explaining the taxpayer's administrative remedies.

4. The notice must inform the taxpayer of the date, time and location of the administrative hearing to be held at which the taxpayer may show cause why the business enterprise should not be padlocked. Failure to appear at the administrative hearing will be deemed a waiver of the hearing.

5. The notice shall inform the taxpayer that an allegation that the assessment is erroneous will not be considered at the hearing. If the taxpayer desires to make such an allegation it shall be in the form of an application for correction of an erroneous assessment pursuant to § 58.1-1821 of the Code of Virginia. The application shall fully set forth the grounds upon which the taxpayer relies and all facts relevant to the taxpayer's contention. (See subsection C.)

6. The notice shall give the taxpayer a telephone number that he can call to get more information regarding the Department of Taxation's intent to padlock the business enterprise.

B. Complementary actions.

The department's notice may be issued at the same time as a notice to revoke a dealer's registration certificate under § 58.1-613 of the Code of Virginia. The show cause hearing under subsection A 4 may be held in conjunction with a hearing required under § 58.1-613 of the Code of Virginia for the revocation of a sales tax certificate of registration.

C. Application for correction.

The taxpayer may file an application for correction of an erroneous assessment pursuant to § 58.1-1821 of the Code of Virginia if he has reason to believe that the assessment is erroneous. However, if a taxpayer files an application after the department has issued a notice of intent to padlock the business enterprise, it is presumed that one of the taxpayers reasons for filing the application is to prejudice or to render wholly or partially ineffectual proceedings to collect the delinquent tax. In this case, the department may determine that it is in the best interest of the Commonwealth to continue efforts to collect the delinquent tax during the time that it is considering the application for correction, unless the taxpayer posts a bond in an amount and with security satisfactory to the Tax Commissioner.

§ 4. Procedure for padlocking a business enterprise.

A. Order to padlock and notice of distraint.

If the Tax Commissioner determines that it is in the best interest of the Commonwealth to cause a business enterprise to cease operations by padlocking, he shall issue an order requiring that such action be done. In issuing an order to padlock and notice of distraint, the Tax Commissioner shall certify:

1. He has determined that padlocking is an appropriate method of collecting delinquent taxes: and

2. There has been compliance by the Department of Taxation with the notice requirements found in § 3 of this regulation.

B. Delivery of order and notice.

The Tax Commissioner or his delegate shall person-ally deliver the order to padlock and the notice of distraint to the business enterprise. The order and notice will be delivered during the normal business hours of the business enterprise. If the owner of the business enterprise is present, the order and notice shall be presented to the owner. In the absence of the owner, the order and notice shall be presented to the person having responsibility for the operation of the business enterprise. If no such person is present, the order and notice shall be posted. In all cases, the order and notice shall also be mailed to the last known address of the taxpayer.

C. Employees' and customers' personal effects.

After delivering or posting the order to padlock and notice, employees and customers of the business enterprise shall be allowed to gather their personal belongings and to leave the premises.

D. All entrances to the business enterprise shall be adequately secured in order to ensure that no individual may enter the business enterprise to remove inventory, merchandise or other property. After all individuals have left the business premises, steps shall be taken to protect the inventory and other property of the business enterprise.

E. Notices of distraint.

A copy of the order to padlock and the notice of distraint shall be posted at each entrance of the business enterprise that is padlocked. The notice shall contain the name of the Tax Commissioner's designated agent or agents. street address and telephone number where any person may call concerning the distraint. The notice shall contain a statement that it is a Class 1 misdemeanor for anyone to enter the premises without prior approval of the Tax Commissioner or his designee.

§ 5. Remedies.

A. Removal of padlocks.

If the taxpayer takes any one of the following actions, the Department of Taxation must cease the distraint and remove the notices and any other devices preventing entry to the business enterprise.

1. Full payment of all assessed taxes. Upon receipt of payment in full in cash or its equivalent for the amount of delinquent taxes specified in the notice to the taxpayer. plus any taxes. penalties and interest assessed after the date of the notice, and after the taxpayer has filed returns for all periods for which returns were delinquent and all taxes then due, the Department of Taxation shall cease the distraint and remove the padlocks.

2. Satisfactory payment arrangement. The Tax Commissioner may enter into a good faith agreement with the taxpayer that provides for the full payment of all delinquent taxes specified in the notice to the taxpayer. The agreement may provide for periodic payments to be made at specific dates. Upon agreement on a satisfactory payment arrangement the Department of Taxation shall cease the distraint and remove the padlocks.

3. Posting of bond. The taxpayer may file an application to the Tax Commissioner for correction of an assessment if he has reason to believe that the assessment is erroneous. However, if a taxpayer files an application after padlocking has occurred, the Department of Taxation will not cease the distraint and remove the padlocks during the time that it is considering the application for correction until the taxpayer has posted a bond in an amount and with security satisfactory to the Tax Commissioner.

B. Levy and sale.

If the taxpayer fails to take any of the actions specified in subsection A within three business days after the padlocking of the business enterprise, collection may be enforced as provided in Article 19 ( § 8.01-196 et seq.) of Chapter 3 of Title 8.01 of the Code of Virginia. The Tax Commissioner may cause a writ of fieri facias to be issued or may direct the sheriff to sell property pursuant to a previous writ of fieri facias. As provided in § 8.01-201 of the Code of Virginia, such a writ shall require the sheriff to levy upon the "goods, chattels, and real estate" of the taxpayer.

C. Leased premises.

If the business enterprise is located in leased premises and the taxpayer has not taken any of the actions specified in subsection A, within three business days after padlocking, then the Department of Taxation may cause a writ of fieri facias to be issued and served as soon as practicable after expiration of the three-day period, if it has not already done so. The sheriff shall be directed to remove the property of the business enterprise from the leased premises for storage pending sale. Notwithstanding the preceding sentence, the Department of Taxation may make arrangements with the sheriff and the owner of the leased premises to store the property of the business enterprise at the leased premises for such time as may be deemed expedient.

§ 6. Criminal penalty.

It is a Class 1 misdemeanor for any person to enter the padlocked premises without prior approval of the Tax Commissioner. For purposes of this provision:

1. Persons who enter the premises under emergency conditions to protect life or property shall be deemed to have the prior permission of the Tax Commissioner for such entry.

2. The owner of the premises, or an employee or agent of the owner who enters the premises for purposes of routine maintenance shall be deemed to have the prior permission of the Tax Commissioner for such entry.

3. Any person who desires to remove his personal property from the premises shall contact the designated agent of the Tax Commissioner to establish his ownership of the property and to obtain permission to remove it.
  • If the property has been repaired by the business enterprise, or other charges are owed to the business enterprise by the owner of the property, the Tax Commissioner may require payment to the Department of Taxation for such charges prior to permitting the removal of such property. Prior to permitting the removal of such property, the Tax Commissioner may require a lien holder to establish the priority and amount of his lien to establish the fair market value of the property, and to pay an amount representing the excess of the fair market value of the property over the amount secured by the lien on the property. Any payments received shall be applied first to the expenses of levy and sale, if any, then to the delinquent tax.
4. Under no circumstances will any person be deemed to have permission to enter the premises if:

a) The purpose of the entry is to operate the business enterprise, or

b) The purpose of the entry is to remove, conceal or destroy any property on the premises (unless subdivision 1 applies).


Rulings of the Tax Commissioner

Last Updated 08/25/2014 16:46