Does Virginia's 100% disabled veteran property tax exemption apply if the veteran lives in a unit owned through a real estate cooperative?

Plain-English summary

In 2010 Virginia voters added Article X, § 6-A to the state constitution, providing a real property tax exemption for the principal residence of any veteran rated 100 percent service-connected, permanent, and total disability by the VA, and for their surviving spouse. The General Assembly implemented it in 2011 by enacting §§ 58.1-3219.5 and 58.1-3219.6. Virginia Beach's real estate assessor asked whether a veteran who otherwise qualified but lived in a unit owned through a real estate cooperative could claim the exemption.

Cuccinelli concluded the exemption did not reach cooperative interests. A "cooperative" under the Virginia Real Estate Cooperative Act is real estate owned by an association of proprietary lessees; an individual's "cooperative interest" is "an ownership interest in the association coupled with a possessory interest in a unit under a proprietary lease." The veteran does not own real estate; the veteran owns a share of the association and holds a leasehold in the unit. Section 58.1-3219.5 defines the eligible "real property" to exclude "any interest held under a leasehold or term of years." Because the cooperative-interest holder's interest in the unit is a leasehold, it cannot qualify.

The AG anchored the result on three points: the statute's plain language; the long-standing rule that tax exemptions are narrowly construed against the taxpayer; and an earlier Virginia AG opinion (1999) reaching the same conclusion about cooperatives in the context of the elderly-and-disabled exemption.

Currency note

This opinion was issued in 2012. Subsequent statutory amendments, court decisions, or later AG opinions may have changed the analysis. Treat this page as historical context, not current legal advice. Verify current law before relying on any specific rule, deadline, or remedy mentioned here.

Common questions

Why doesn't a cooperative interest count as ownership of real property?
Under the Virginia Real Estate Cooperative Act, the association owns the real estate. The individual member owns a share in the association and holds the right to occupy a specific unit under a "proprietary lease." Even though many cooperative arrangements feel like ownership in everyday terms, the legal interest in the unit is a lease, and § 58.1-3219.5 expressly excludes "any interest held under a leasehold or term of years."

What about condominiums?
The opinion drew a contrast. In a condominium regime, each unit is owned separately by the unit owner. That fee-simple interest in real property is not a leasehold and is not excluded from the definition.

Does it matter that the veteran meets every other requirement?
No. The AG was explicit: the exemption does not apply, "regardless of whether the veteran otherwise satisfies all of the other requirements imposed by law to claim the exemption." The form of the legal interest controls.

What if the cooperative's documents are unusual?
The AG had to assume the Virginia Real Estate Cooperative Act applied because the request did not identify a specific cooperative. A cooperative created before July 1, 1982, may be governed by different terms under §§ 55-425 and 55-428(E). A specific cooperative's instruments might warrant a separate look, but the structural analysis (association owns the real estate; member holds a leasehold) is the Act's default.

Background and statutory framework

Article X, § 6-A of the Virginia Constitution, ratified by 82.4 percent of voters at the November 2, 2010, general election, directs the General Assembly to exempt from taxation the real property of any veteran determined by the U.S. Department of Veterans Affairs to have a 100 percent service-connected, permanent, and total disability, when the veteran occupies the property as their principal place of residence. The exemption extends to a non-remarried surviving spouse who continues to occupy the property as their principal residence.

The General Assembly implemented the exemption by adding Article 2.3 (§§ 58.1-3219.5 and 58.1-3219.6) to Chapter 32 of Title 58.1. Section 58.1-3219.5 defines the eligible real property and contains the operative exclusion: "The term does not include any interest held under a leasehold or term of years."

The Virginia Real Estate Cooperative Act, with its definitions set out in § 55-426, treats a "cooperative" as real estate owned by an association of proprietary lessees, and a member's "cooperative interest" as "an ownership interest in the association coupled with a possessory interest in a unit under a proprietary lease." A cooperative is created under the Act "only by recording a declaration executed in the same manner as a deed, and by conveying to the association the real estate subject to that declaration."

A 1999 AG opinion analyzed cooperatives in the context of the elderly-and-disabled exemption (Article X, § 6(b)) and reached the same structural conclusion: because the cooperative association owns the real estate, individual proprietary lessees do not own the real estate as required.

The opinion applied the settled rule that tax exemptions are narrowly construed and, in doubtful cases, are read against the application of the exemption.

Citations

• Va. Const. art. X, § 6-A (100% disabled veteran tax exemption)
• Va. Code § 58.1-3219.5 (implementing statute, including the leasehold exclusion)
• Va. Code § 55-426 (definitions: cooperative, cooperative interest, association)
• Va. Code §§ 55-425, 55-428 (applicability to cooperatives created before July 1, 1982)
• Va. Code §§ 55-477, 55-478 (public offering statement disclosures)
• 1999 Op. Va. Att'y Gen. 205 (elderly-and-disabled exemption does not reach cooperative proprietary lessees)

Source

• Landing page: https://www.oag.state.va.us/annual-reports-opinions/official-opinions
• Original PDF: https://www.oag.state.va.us/files/Opinions/2012/11-056_Banagan.pdf

Original opinion text

COMMONWEALTH of VIRGINIA
Office of the Attorney General
Kenneth T. Cuccinelli, II
Attorney General

December 21, 2012

Mr. Jerald D. Banagan
Real Estate Assessor, City of Virginia Beach
Municipal Center, Building 18
2424 Courthouse Drive
Virginia Beach, Virginia 23456-9054

900 East Main Street
Richmond, Virginia 23219
804-786-2071
FAX 804-786-1991
Virginia Relay Services
800-828-1120
7-1-1

Dear Mr. Banagan:
I am responding to your request for an official advisory opinion in accordance with § 2.2-505 of the Code of Virginia.

Issue Presented
You ask whether the exemption from real estate taxation provided by Article X, Section 6-A, of the Virginia Constitution as implemented by § 58.1-3219.5 applies to certain interests under the Virginia Real Estate Cooperative Act ("Act"). You specifically inquire whether the cooperative interest of a veteran in a real estate cooperative is exempt from taxation provided the veteran otherwise satisfies all of the requirements set forth in the Article X, Section 6-A exemption and in § 58.1-3219.5 implementing the exemption.

Response
It is my opinion that the exemption from taxation under Article X, § 6-A and § 58.1-3219.5 does not apply in favor of a veteran who is a proprietary lessee in a real estate cooperative, regardless of whether the veteran otherwise satisfies all of the other requirements imposed by law to claim the exemption.

Background

Tax Exemption
At the general election held on November 2, 2010, the voters of the Commonwealth were presented the following referendum question related to amending the Constitution of Virginia:

Shall the Constitution be amended to require the General Assembly to provide a real property tax exemption for the principal residence of a veteran, or his or her surviving spouse, if the veteran has a 100 percent service-connected, permanent, and total disability?

With 82.4 percent of the voters answering the question in the affirmative, Article X is now amended to include a new § 6-A, which provides that:

Notwithstanding the provisions of Section 6, the General Assembly by general law, and within the restrictions and conditions prescribed therein, shall exempt from taxation the real property, including the joint real property of husband and wife, of any veteran who has been determined by the United States Department of Veterans Affairs or its successor agency pursuant to federal law to have a one hundred percent service-connected, permanent, and total disability, and who occupies the real property as his or her principal place of residence. The General Assembly shall also provide this exemption from taxation for real property owned by the surviving spouse of a veteran who was eligible for the exemption provided in this section, so long as the surviving spouse does not remarry and continues the real property as his or her principal place of residence.

As a result of the passage of this referendum question, the 2011 Session of the General Assembly enacted legislation to implement this real property tax exemption, adding into Chapter 32 of Title 58.1, a new Article 2.3, consisting of §§ 58.1-3219.5 and 58.1-3219.6. The substantive elements implementing the tax exemption provided by the Constitutional amendment are contained in § 58.1-3219.5.

Real Estate Cooperatives
The Act, adopted in 1982, contains numerous definitions in § 55-426 that are essential to understanding its many other provisions. Also, the Act contains a number of provisions related to its applicability, including its applicability to cooperatives created prior to July 1, 1982, as primarily set forth in §§ 55-425 and 55-428E. For purposes of this opinion, I must assume that the Act applies given that your opinion request does not identify any particular cooperative. Regarding the ownership of the cooperative's real estate, the definition of a "cooperative" in § 55-426 clearly provides that the real estate comprising a cooperative is owned by an association of proprietary lessees. In fact, a cooperative is created under the Act "only by recording a declaration executed in the same manner as a deed, and by conveying to the association the real estate subject to that declaration." In contrast to a condominium regime where individual units are owned separately, the cooperative, by its very nature, is owned by an association consisting of proprietary lessees.

The Declaration of a cooperative is the instrument or instruments that create[s] the cooperative and establishes the framework for its long-term governance and operations. In selling an interest in a cooperative, all relevant instruments forming a part of the Declaration must be disclosed in a public offering statement that meets the requirements of §§ 55-477 and 55-478.

Applicable Law and Discussion

In cases of statutory interpretation, the language of the statute is the first point of inquiry. When the language of a statute is clear on its face, no further inquiry is needed. The critical language in this statute is as follows:

For purposes of this exemption, real property of any veteran includes real property (i) held by a veteran alone or in conjunction with the veteran's spouse as tenant or tenants for life or joint lives, (ii) held in a revocable inter vivos trust over which the veteran or the veteran and his spouse hold the power of revocation, or (iii) held in an irrevocable trust under which a veteran alone or in conjunction with his spouse possesses a life estate or an estate for joint lives or enjoys a continuing right of use or support. The term does not include any interest held under a leasehold or term of years.

Exemptions from real property taxation are narrowly construed and, in doubtful cases, must be construed against the application of the exemption. Where the language is clear, the result is even more readily obtained. The cooperative interest of an otherwise qualified veteran in a real estate cooperative is "an ownership interest in the association coupled with a possessory interest in a unit under a proprietary lease." The real property interest of the individual living in the unit is a leasehold interest in the property. Because the definition of real property for purposes of the exemption excludes leasehold interests, the cooperative interest held in a real estate cooperative cannot qualify for the exemption.

In a prior opinion of this Office dealing with the applicability of a tax exemption for the elderly to interests in real estate cooperatives, the Attorney General determined that the cooperative association owned the real estate in the cooperative. Consequently, elderly owners of an interest in a real estate cooperative who otherwise met the criteria of the statute did not qualify for the tax exemption because they did not own the real estate as required by the statute. 1999 Op. Va. Att'y Gen. 205.

Conclusion

Accordingly, it is my opinion that the exemption from taxation under Article X, § 6-A and § 58.1-3219.5 does not apply in favor of a veteran who is a proprietary lessee in a real estate cooperative, regardless of whether the veteran otherwise satisfies all of the other requirements imposed by law to claim the exemption.

With kindest regards, I am,
Very truly yours,

Kenneth T. Cuccinelli, II
Attorney General