Were cable-television converter boxes taxable as local business tangible personal property in Virginia?

Subject

Cable TV converters are intangible property exempt from BTPP tax.

Plain-English summary

Virginia held that the cable-television converter boxes were exempt from local business tangible personal property tax. Customers needed the converters, also called set-top boxes, to receive cable service, and the taxpayer owned and issued the boxes through its affiliated cable provider.

The county had classified the converters as taxable machinery. The Department relied on its prior converter-box determinations and classified them instead as intangible property under Va. Code § 58.1-1101(A)(2)(a).

The Tax Commissioner remanded the case to the county with instructions to abate any part of the 2014 assessment based on treating the converters as taxable BTPP.

What this means for you

• Virginia's classification of an asset, not its physical form alone, controls whether it enters the local BTPP base.
• Cable converter and set-top boxes were treated as exempt intangible property on the facts and law in this ruling.
• Keep ownership, function, deployment, and local-return records for equipment whose classification may be disputed.
• BTPP tax is administered by local officials, with a state appeal available under the cited procedure.

Common questions

Q: Did the county classify the boxes as machinery?

A: Yes, but the Tax Commissioner rejected that classification and treated the converters as exempt intangible property.

Q: Did the ruling eliminate the entire 2014 assessment?

A: It directed the county to abate any assessment issued for 2014 based on the converters being subject to BTPP tax.

Q: Was this a Virginia sales-tax ruling?

A: No. It concerned a locally administered business tangible personal property tax assessment.

Citations and references

• Va. Code §§ 58.1-3983.1(D) and 58.1-1101(A)(2)(a).

Source

• Landing page: Virginia Laws, Rules & Decisions
• Ruling: P.D. 15-103

Original ruling text

May 12, 2015

Re: Appeal of Final Local Determination
Taxpayer: *
Locality: ***
Business Tangible Personal Property Tax

Dear *:

This final state determination is issued upon the application for correction filed by * (the "Taxpayer") with the Department of Taxation. The Taxpayer appeals an assessment of business tangible personal property (BTPP) tax issued to the Taxpayer by the *** (the "County") for the 2014 tax year.

The BTPP tax is imposed and administered by local officials. Virginia Code § 58.1-3983.1 D authorizes the Department to issue determinations on taxpayer appeals of BTPP tax assessments. On appeal, a BTPP tax assessment is deemed prima facie correct, i.e. , the local assessment will stand unless the taxpayer proves that it is incorrect.

The following determination is based 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 Tax Policy Library section of the Department's website.

FACTS

The Taxpayer is affiliated with a cable television provider. In order to receive the cable service, customers must have a converter, also known as a set top box. The converters are owned by the Taxpayer and are issued to cable customers by the cable television provider.

The Taxpayer classified the converters as intangible personal property on its 2014 BTPP return filed with the County. The County audited the Taxpayer for the 2014 tax year and issued an assessment of BTPP tax. The Taxpayer appealed contending the boxes were intangible property exempt from the BTPP tax. In its final determination, the County determined that the converters were machinery subject to tax. The Taxpayer has filed an appeal with the Tax Commissioner, contending the converters are intangible property not subject to the local taxation.

ANALYSIS

The Department has held in numerous determinations that converters should be classified as intangible property exempt from the BTPP tax. See Public Document (P.D.) 12-163 (10/16/2012), P.D. 12-199 (12/16/2012), P.D. 14-68 (5/21/2014) and P.D. 14-70 (5/21/2014). In fact, the Department has addressed the classification of converter boxes for a previous Taxpayer appeal of the County's final determination for the 2008 through 2010 tax years. See P.D. 12-162 (10/16/2012).

DETERMINATION

Based on information provided and the analysis set forth in the public documents cited above, I find that the converters were intangible property exempt from BTPP tax under Va. Code § 58.1-1101 A 2a. As such, I am remanding the case back to the County to abate any assessment issued for the 2014 tax year based on the converters being subject to the BTPP tax. 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/1-4876014016.B