Did Virginia reverse local property-tax assessments based on revised fixed-asset schedules?

Plain-English summary

Virginia found no basis to reverse its prior decision upholding the city's business tangible personal property tax assessments. The taxpayer remained responsible for proving, with adequate records, that fixed-asset schedules included property that had been replaced, become obsolete, or was no longer on the premises.

The city had found the revised depreciation schedules insufficient. Virginia explained that a local commissioner of the revenue may demand records needed for an accurate assessment and may adjust an assessment when the taxpayer does not maintain or provide sufficient information.

Whether an item was fully depreciated on a federal return did not decide whether it was physically present on the local tax date. That was a factual issue for the city. The Department also emphasized that both parties in a local appeal must clearly document the facts and share appeal correspondence with each other.

The prior determination had given the taxpayer 30 days to provide better asset documentation. If it had not done so, the assessments would remain and the city could collect them. The taxpayer could still seek timely review in the appropriate circuit court.

What this means for you

• Keep asset-level records showing acquisition, disposal, replacement, location, and status on each local tax date.
• A revised depreciation schedule may not prove that an asset was absent from the business premises.
• Full federal depreciation does not itself remove property from a local tangible-property tax return.
• In a Virginia local-tax appeal, provide the same supporting documents and correspondence to the locality and the Department.
• Circuit-court review may remain available after the Tax Commissioner's determination, subject to statutory deadlines.

Common questions

Q: Did the Department decide which displays or other assets were still present?
A: No. It said the property's presence on the tax date was a factual matter for the city to determine.

Q: Did full depreciation on the federal return prove the assets should be excluded?
A: No. Federal depreciation did not establish whether the property remained at the premises.

Q: What if the taxpayer did not submit the additional records?
A: The assessments would be upheld and the city could proceed with collection.

Citations and references

• Va. Code §§ 58.1-3109 6, 58.1-3903, 58.1-3983.1 B 4 and G, and 58.1-3984.
• 23 VAC 10-500-720.
• Virginia Public Document 12-160.

Subject

Fixed asset schedules overstated: Assets replaced, were obsolete or were no longer on the premises.

Source

• Landing page: Virginia Laws, Rules & Decisions
• Ruling: P.D. 13-53

Original ruling text

April 29, 2013

Re: Taxpayer: *

Locality: *

Business Tangible Personal Property Tax

Dear *:

You request a reconsideration of Public Document (P.D.) 12-160 (10/12/2012), in which the Department upheld assessments of Business Tangible Personal Property (BTPP) Tax issued to * (the "Taxpayer") by the Commissioner of Revenue of the *** (the "City") for the 2007 through 2009 tax years.

The following determination is based on the facts on the facts presented to the Department summarized below. The Code of Virginia sections and public documents cited are available on-line at www.tax.virginia.gov in the Laws, Decisions and Rulings section of the Department's web site.

FACTS

In P.D. 12-60, the Department determined that the Taxpayer had failed to provide sufficient documentation to the City to show that its fixed asset schedules were overstated and that certain assets that had been replaced, were obsolete, or were no longer on the premises. The Taxpayer now seeks a redetermination, contending the Department based its decision on erroneous facts.

ANALYSIS

Under the provisions of Va. Code § 58.1-3109 6, the local commissioner of the revenue is empowered with the authority to require records and other information necessary to make an accurate assessment of a person's tangible personal property. It is incumbent upon the taxpayer to prove to the satisfaction of the local taxing authority that it properly reported the value of its property on its BTPP returns. See Va. Code § 58.1-3983.1 B 4.

In the Taxpayer's case, the City determined that the revised depreciation schedules provided by the Taxpayer were insufficient to prove the value of the Taxpayer's business tangible property. When examining a taxpayer, a locality may adjust an assessment based on the evidence provided. When a taxpayer fails to maintain or provide sufficient records on which to make an accurate assessment, the locality may adjust an assessment as it deems necessary and assess such additional tax in accordance with Va. Code § 58.1-3903.

The Taxpayer contends that it was not aware of the City's contention that displays were being used as office furniture when P.D. 12-160 was issued. The City's final determination stated that a number of assets were still located at the definite place of business that the Taxpayer claimed as disposals. In its response to the Taxpayer's appeal to the Tax Commissioner, dated May 24, 2012, the City indicated that some of this property included former displays. The City should have provided a copy of this correspondence to the Taxpayer.

The Taxpayer also disagrees with the Department's conclusion concerning possible depreciation deductions on federal income tax returns. The Taxpayer states that all of the property it desires to exclude from the property tax returns was fully depreciated on its federal return. The Taxpayer believes filing an amended federal income tax return is moot as it would not change the federal income tax liability. Regardless of whether the property was reported on a federal depreciation schedule or not, the determination as to whether a particular item of property was located on the Taxpayer's premises on tax day is a factual matter for the City to determine.

The Department can only make a determination based on the facts provided by or ascertained from a taxpayer or a locality. It is the responsibility of the locality and the taxpayer included in the appeal to clearly articulate and document the facts of a case. See Title 23 of the Virginia Administrative Code (VAC) 10-500-720. In addition, Department procedures require the parties involved in local tax appeals to ensure that each party is provided with copies of any and all documentation or correspondence submitted with regard to such appeal.

DETERMINATION

After carefully reviewing the issues and facts provided, I find no basis to change my previous determination. In P.D. 12-160, the Taxpayer was given 30 days to provide additional documentation to the City to substantiate an accurate accounting of its assets. If the Taxpayer has not provided this documentation to the City, the assessments will be upheld and the City may proceed with collection action.

Within the time permitted by statute, the Taxpayer may file an appeal with the appropriate circuit court for review pursuant to Va. Code §§ 58.1-3983.1 G and 58.1­3984. The law provides that neither the Tax Commissioner nor the Department shall be made party to such an appeal merely because the Tax Commissioner has ruled on the issue.

If you have any questions regarding this response, you may contact * in the Office of Tax Policy, Appeals and Rulings, at ***.

Sincerely,

Craig M. Burns

Tax Commissioner

AR/1-5240411059.B