If Bristol adds apartments to The Falls retail development, will it lose the special state sales tax revenues it gets from the development?

Subject

Whether the City of Bristol can authorize residential construction within The Falls development of regional impact without losing its eligibility to receive the special sales tax revenues authorized by Va. Code § 58.1-608.3(C).

Plain-English summary

Virginia Code § 58.1-608.3 lets certain municipalities recoup state sales tax revenues from transactions occurring at qualifying "public facilities" the locality financed with bonds. The list of qualifying public facilities (in subsection A) is narrow: convention centers, attached hotels, minor league baseball stadiums, outdoor amphitheaters, and a few others. The list expressly excludes shopping centers and residential units, the two categories most likely to generate sales tax revenue.

Subsection B contains a special carve-out: "[n]otwithstanding the definition of 'public facility' in subsection A, a development project that meets the requirements for a 'development of regional impact' set forth herein shall be deemed to be a public facility under this provision of this section." The subsection then sets criteria for what qualifies as a development of regional impact (with location-specific requirements, including some specifically for Bristol).

The Falls in Bristol qualified as a development of regional impact and was deemed a public facility under subsection B. The City issued bonds to fund it and has been receiving sales tax revenue from transactions inside the development. A subsequent developer wanted to build a multi-family apartment complex on part of the parcel, since retail tenants had been hard to find for that section. The City Attorney asked whether adding residential units would disqualify the project from continued sales tax sharing.

AG Miyares said no. The "notwithstanding" clause in subsection B operates to override the subsection A exclusions of shopping centers and residential units. A development of regional impact that meets subsection B's criteria is treated as a public facility for sales tax purposes, even if it includes structures that subsection A would otherwise exclude. Citing Lamar Co. v. City of Richmond, the AG noted that "notwithstanding" means "despite" or "in spite of," and applied that meaning to give subsection B real preemptive force over subsection A.

The practical effect: Bristol can add the apartment complex (and any other residential or shopping-center elements consistent with the development of regional impact) without losing the sales tax revenue stream.

What this means for you

If you are a Virginia municipal finance officer or city attorney

The opinion holds that a project that qualifies as a development of regional impact under § 58.1-608.3(B) is deemed a public facility for § 58.1-608.3(C) sales tax purposes, and that adding residential or shopping-center elements does not disqualify it, because the subsection (B) "notwithstanding" clause overrides the subsection (A) exclusions. It notes that § 58.1-608.3(B) requires the qualifying development to be located in the City of Bristol.

If you are a real estate developer working on a mixed-use project in a regional impact zone

The opinion holds that, for a development already qualifying under § 58.1-608.3(B), adding a multi-family apartment complex or other residential structures does not strip the municipality of the sales tax revenue authorized by subsection (C). The opinion is tied to Bristol's The Falls and the location-specific requirements of subsection (B); it does not address mixed-use projects in localities outside that provision.

If you are bond counsel

The opinion holds that adding residential units to a qualifying development of regional impact does not, by itself, remove the project from § 58.1-608.3(C) sales tax sharing. The conclusion turns on the project meeting the subsection (B) criteria; the opinion does not address bond structuring or disclosure.

If you are a state legislator or budget analyst

The opinion reads § 58.1-608.3(B) as a deliberate override of subsection (A)'s exclusions for shopping centers and residential units, relying on the Supreme Court of Virginia's reading of "notwithstanding" as "despite" or "in spite of." It does not comment on whether that result matches the statute's policy intent or propose any amendment.

Common questions

Q: What is a "development of regional impact" under § 58.1-608.3(B)?
A: The statute sets specific criteria, some location-specific (Bristol has its own requirements). Generally, the development must be large enough and have a regional draw such that it meets the statutory definition. Each municipality with a qualifying development has its own framework.

Q: Does this opinion mean any municipality can build apartments and claim sales tax sharing?
A: No. The opinion applies to developments that already qualify as developments of regional impact under § 58.1-608.3(B). Most municipalities cannot use this provision because they do not have a qualifying development. The carve-out is narrow in its applicability.

Q: Does the sales tax sharing apply to all sales in the development, or only certain types?
A: It applies to sales taxes generated by transactions within the public facility, as the statute defines it. Once the project is deemed a public facility under subsection B, the entire development falls within the sharing structure for retail transactions.

Q: What happens if the development of regional impact ceases to qualify under the criteria?
A: The carve-out would no longer apply, and the project would revert to subsection (A) analysis, which would likely disqualify it (residential and shopping center elements are expressly excluded). Maintaining regional impact qualifications is important for ongoing sales tax sharing.

Q: Are there other "notwithstanding" clauses in the statute that operate similarly?
A: § 58.1-608.3(B) contains additional details for specific developments and locations. The general structure of subsection B as an override of subsection A's exclusions is consistent throughout. Counsel should review the specific subsection B language for any project in question.

Q: Are bonds backed by these sales tax revenues considered general obligations?
A: That depends on the city's authorizing documents. Bristol's bond financing for The Falls included both general obligation debt and revenue bonds. The sales tax sharing provides a revenue stream that supports the revenue bonds; general obligation debt is backed by the city's full faith and credit regardless.

Background and statutory framework

Section 58.1-608.3 is part of Virginia's framework for incentivizing local investment in qualifying public facilities. The state shares a portion of the sales tax generated within the facility to help the locality service debt issued to build it. The shared revenue is meaningful for projects with high retail throughput.

Subsection A's list of qualifying facilities reflects a policy choice to support specific kinds of investments (convention centers, hotels attached to convention centers, minor league baseball stadiums, outdoor amphitheaters). The exclusions for shopping centers and residential units were specifically inserted to keep the carve-out from becoming a generic retail subsidy.

Subsection B's regional impact carve-out is the workaround for specific large mixed-use projects in specified Virginia municipalities. The carve-out has been used for projects in Bristol, Hampton, and a few other locations. The "notwithstanding" language in subsection B is the key drafting choice that makes the carve-out work; without it, subsection A's exclusions would have controlled.

The Lamar Co. v. City of Richmond (2014) interpretation of "notwithstanding" provides binding Virginia Supreme Court authority for the AG's reading. Once "notwithstanding" is read as "despite" or "in spite of," the subsection B carve-out clearly operates to override subsection A's exclusions for qualifying projects.

The Bristol scenario is a useful illustration. The Falls was originally conceived as a primarily retail project. After several years, market reality forced reconsideration: not all of the parcels were attracting retail tenants. The developer's pivot to multi-family apartments was a practical response. Without this opinion, the city might have faced a difficult choice between letting the parcel sit vacant or losing sales tax sharing. The opinion preserves the flexibility.

Citations and references

Statutes:

• Va. Code Ann. § 58.1-608.3 (sales tax sharing for public facilities)

Cases:

• Lamar Co., LLC v. City of Richmond, 287 Va. 348 (2014) (Virginia Supreme Court; meaning of "notwithstanding")

Source

• Landing page: https://www.oag.state.va.us/annual-reports-opinions/official-opinions
• Original PDF: https://www.oag.state.va.us/files/Opinions/2022/22-012-Eads-issued.pdf

Original opinion text

Best-effort transcription from a scanned PDF. Minor errors may remain; the linked PDF is authoritative.

COMMONWEALTH of VIRGINIA

Office of the Attorney General

Jason S. Miyares
Attorney General
202 North Ninth Street
Richmond, Virginia 23219
May 18, 2022
804-786-2071
Fax 804-786-1991
Virginia Relay Services
800-828-1120
7-1-1

Randall C. Eads, Esquire
Bristol City Attorney
300 Lee Street
Bristol, Virginia 24201

Dear Mr. Eads:

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 inquire whether the construction of residential units within a development of regional impact will prohibit the City of Bristol from receiving certain sales tax revenues it currently receives, or will receive from property used for restaurant or retail sales pursuant to Virginia Code § 58.1-608.3(C).

Response

It is my opinion that the City of Bristol may continue to receive sales tax revenues pursuant to Virginia Code § 58.1-608.3(C) from a development of regional impact if the City authorizes the construction of residential units within such development.

Facts

You relate that the City of Bristol began development of a large real estate parcel known as The Falls in 2012 for retail purposes. The City incurred general obligation debt and issued revenue bonds to fund development of the project. The development currently includes several retail and restaurant tenants, and the City continues to seek additional similar tenants. In December 2017, a developer purchased a parcel within The Falls; however, it has been unsuccessful in marketing the parcel to retail and restaurant tenants. The developer has requested authorization to construct a multi-family apartment complex on most of the parcel while setting aside the remainder for retail or restaurant options. You note that The Falls is considered a "development of regional impact" pursuant to § 58.1-608.3(B), and the City receives additional sales tax revenues from the Commonwealth for sales occurring within the development. You state that the City believes it could authorize construction of the multi-family apartment complex or other residential structures within The Falls and remain eligible to receive the retail sales tax revenues pursuant to § 58.1-608.3.

Applicable Law and Discussion

Section 58.1-608.3(C) entitles certain municipalities to receive the sales tax revenues generated by transactions occurring in public facilities for which the municipality has issued bonds. Section 58.1-608.3(A) defines a "public facility" as:

(i) any auditorium, coliseum, convention center, or conference center, which is owned by a Virginia county, city, town, authority, or other public entity and where exhibits, meetings, conferences, conventions, seminars, or similar public events may be conducted; (ii) any hotel which is owned by a foundation whose sole purpose is to benefit a baccalaureate public institution of higher education in the Commonwealth and which is attached to and is an integral part of such facility, together with any lands reasonably necessary for the conduct of the operation of such events; (iii) any hotel which is attached to and is an integral part of such facility; (iv) any hotel that is adjacent to a convention center owned by a public entity and where the hotel owner enters into a public-private partnership whereby the locality contributes infrastructure, real property, or conference space; (v) a sports complex consisting of a minor league baseball stadium and related tournament, training, and parking facilities, where a municipality owns a component of the sports complex; or (vi) any outdoor amphitheater, provided that a locality owns, wholly or partly, and contributes to financing the construction of such amphitheater.

The term "public facility" excludes buildings commonly described as "malls" or "shopping centers," as well as "residential condominiums, townhomes, or other residential units." These types of structures generally do not qualify as public facilities for purposes of entitling a municipality to receive the sales tax revenues generated by transactions taking place at such facilities.

Section 58.1-608.3(B), however, provides that "[n]otwithstanding the definition of 'public facility' in subsection A, a development project that meets the requirements for a 'development of regional impact' set forth herein shall be deemed to be a public facility under this provisions of this section." The Supreme Court of Virginia has determined that the term "notwithstanding" means "despite [or] in spite of." Accordingly, a project that otherwise qualifies as a development project of regional impact is still deemed to be a public facility for purposes of § 58.1-608.3(C) in spite of the fact that it does not fall into one of the categories of public facilities set forth in § 58.1-608.3(A). Similarly, a project that meets the requirements for a development of regional impact that also includes shopping centers or residential units would still be considered a "public facility" in spite of the limitations imposed by § 58.1-608.3(A). I would also note that § 58.1-608.3(B) requires development(s) of regional impact to be located in the City of Bristol.

You advise that The Falls was previously determined to meet the requirements of § 58.1-608.3(B) to qualify as a "development project of regional impact." Thus, it was deemed to be a public facility for purposes of the City's eligibility to receive sales tax revenues pursuant to § 58.1-608.3(C) in spite of its inclusion of a retail shopping center. Because a project otherwise satisfying the requirements for a development of regional impact may include structures such as shopping centers, malls, or residential units and still qualify as a public facility, the addition of such structures to an existing development will not disqualify the project from receiving the sales tax revenue authorized by § 58.1-608.3(C).

Conclusion

Accordingly, it is my opinion that the City of Bristol may authorize the construction of residential units within The Falls, a development of regional impact pursuant to § 58.1-608.3(B), and continue to receive sales tax revenues generated by transactions occurring within The Falls.

With kindest regards, I am,

Very truly yours,

Jason S. Miyares
Attorney General