Could Virginia decide which printing-facility property was taxable before the city corrected its machinery-and-tools tax assessments?

Subject

Jurisdiction to hear appeal denied - Commissioner of the Revenue to correct assessments consistent with local determination.

Plain-English summary

Virginia sent the case back to the city without deciding which printing-facility property was subject to machinery-and-tools tax. The company had filed amended returns for 2010-2012 and supplied additional information. The city decided that some property was taxable and some was not, but it did not actually correct the assessments or deny the refund; instead, it asked the company to file more amended returns.

The Department held that the company had fulfilled its responsibility by timely applying for correction and responding to the city's information requests. Once the city acknowledged errors, Va. Code § 58.1-3980 required the local officials to correct the assessments and issue any resulting refund. For 2013 and 2014, the local assessing official—not the taxpayer—had responsibility to make any additional assessments the city believed necessary.

The Department therefore remanded the matter for the city to adjust the 2010-2014 assessments. After that, the company could use the applicable local appeal procedure, and potentially appeal a final local determination to the Department.

What this means for you

• A local tax refund request or amended return must lead to an actual assessment decision before the next administrative appeal is ripe.
• Preserve the amended returns, application for correction, city correspondence, and every request for supporting information.
• If the locality agrees an assessment is wrong, it must make the correction rather than shift that task back to the taxpayer.
• Machinery-and-tools tax is locally administered, so the local official's procedural steps matter.

Common questions

Q: Did the Tax Commissioner decide whether the disputed property was taxable?

A: No. The ruling was procedural. It required the city to correct or formally determine the assessments first.

Q: Were the 2010 and 2011 claims automatically barred because more than one year had passed?

A: No. The Department explained that the company had timely applied for correction under Va. Code § 58.1-3980, and a locality's resulting decision can constitute a new assessment for appeal purposes.

Q: What happened to the 2013 and 2014 years?

A: The Department said that if the city believed those filed returns understated tax, the local assessing official had to make the assessments rather than ask the taxpayer to amend them.

Citations and references

• Va. Code §§ 58.1-3903, 58.1-3980, 58.1-3983.1, and 58.1-3984.
• Guidelines for Appealing Local Business Taxes, P.D. 04-28.

Source

• Landing page: Virginia Laws, Rules & Decisions
• Ruling: P.D. 15-105

Original ruling text

May 12, 2015

Re: Taxpayer: *
Locality Assessing Tax: ***
Local Machinery and Tools Tax

Dear *:

This notice of jurisdiction is issued upon the application for correction filed by you on behalf of your client, * (the "Taxpayer"), with the Department. The Taxpayer appeals a final determination issued by the *** (the "City") concerning whether certain property located at the Taxpayer's facility in the City was subject to the Machinery and Tools (M&T) tax for the 2010 through 2014 tax years.

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 online in the Laws, Rules and Decisions section of the Department's web site, located at www.tax.virginia.gov .

FACTS

The Taxpayer operates a printing facility in the City. In August 2013, the Taxpayer filed amended returns for the 2010 through 2012 tax years to remove certain property from the basis of taxable assets. In September 2013, the Taxpayer also submitted an application to correct these returns with the City. In addition, the Taxpayer submitted its 2013 return in April 2013 and its 2014 return in January 2014.

In August 2014, the City issued a letter in response to the Taxpayer's application for correction. For each category of property at issue, the City determined that it was either taxable or not, or that more information was needed. In response, the Taxpayer submitted additional information. In December 2014, the City issued a letter, which incorporated its prior determination letter by reference. Based on the new information, the City concluded which of the remaining categories at issue were taxable and which were not. The City, however, did not adjust either the amended returns for the 2010 through 2012 tax years or the original returns for the 2013 and 2014 tax years. Rather, the City asked the Taxpayer to file amended returns consistent with its determination. The Taxpayer appealed to the Department, contending that the categories of property the City considered to be taxable should not be subject to the M&T tax. In its response to the appeal, the City objected, claiming the Department lacks jurisdiction for the 2010 and 2011 tax years.

ANALYSIS

2010 through 2012 Tax Years

Virginia Code § 58.1-3980 provides that any person aggrieved by an assessment of local taxes:

may, within three years from the last day of the tax year for which such assessment is made, or within one year from the date of the assessment, whichever is later, apply to the commissioner of the revenue or such other official who made the assessment for a correction thereof.

Under this procedure, if the taxpayer disagrees in whole or in part with the local assessing officer's determination, the taxpayer may then take its grievance to the circuit court under the provisions of Va. Code § 58.1-3984.

Virginia Code § 58.1-3983.1 B 1 provides that any person assessed with a:

local business tax as defined in this section may appeal such assessment within one year from the last day of the tax year for which such assessment is made, or within one year from the date of such assessment, whichever is later , to the commissioner of the revenue or other assessing official. [Emphasis added.]

Under this provision, if the taxpayer's appeal is denied in part or whole by the local assessing official, the taxpayer may, within 90 days, appeal the assessment to the Department.

The administrative appeals process involving the Department is separate and distinct from the general appeals process afforded to taxpayers with local tax grievances under Va. Code § 58.1-3980. The procedures for the process are clearly defined in the statute.

The Taxpayer filed its amended returns in August 2013. The amended returns for the 2010 and 2011 tax years were each filed more than one year from the last day of the tax year. The City contends that the Taxpayer is barred from pursuing an administrative appeal under Va. Code § 58.1-3983.1 for those tax years because the one year period for filing the local appeal had expired.

Under § 1.4 of the Guidelines for Appealing Local Business Taxes, issued as Public Document (P.D.) 04-28 (6/25/2004), an "assessment" is defined as "a determination as to the proper rate of tax, the measure to which the tax rate is applied, and ultimately the amount of tax, including additional or omitted tax, that is due." When a taxpayer files an amended local business tax return, the local taxing authority must make a determination as to the proper amount of the tax. If the locality denies the refund, it has made a determination as to the proper amount of tax, even if the assessment on that locality's books is not changed. Consequently, the denial of a refund by a local taxing authority would constitute an assessment for purposes of filing an appeal under Va. Code § 58.1-3983.1. See P.D. 10-103 (6/18/2010).

When responding to requests for refunds of local taxes, local taxing officials have the discretion to simply deny the request or issue a final local determination. When a final local determination is not issued by a locality, a taxpayer may file an appeal within the statutory time prescribed with the locality as provided under Va. Code § 58.1-3983.1 B 1. Alternatively, if the locality issues a final determination, the taxpayer may proceed to file an appeal with the Department. See P.D. 11-124 (7/1/2011).

In this case, however, the City has not denied the refund or adjusted the Taxpayer's amended returns resulting in a determination as to the proper amount of tax. Instead, the City has requested new amended returns from the Taxpayer for the 2010 through 2012 tax years.

2013 and 2014 Tax Years

The Taxpayer filed its 2013 return in April 2013 and its 2014 return in January 2014. The City has never made any adjustments to these returns, and these tax years were not included in the Taxpayer's application for correction. In its letter, however, the City asked the Taxpayer to file amended returns for these years as well, to conform to the City's determination regarding the taxability of the various categories of property at issue in the prior tax years.

DETERMINATION

The City argues that the Taxpayer is prohibited from appealing the 2010 and 2011 assessments under Va. Code § 58.1-3983.1 because the amended returns and application for correction were filed more than one year after the last day of the 2011 tax year. The Department has previously rejected this argument in P.D. 10-103. Under Va. Code § 58.1-3980, taxpayers aggrieved by a local tax assessment may apply for a correction. In this case, the application for correction was in the form of amended returns for the 2010 through 2012 tax years. Virginia Code § 58.1-3980 B goes on to require the local taxing officials to review the application and, if satisfied that the assessment is erroneous, abate the erroneous portion of the assessment and issue a refund. This process involves making a determination as to the proper amount of tax due. As such, a locality's decision constitutes a new assessment for purposes of filing an appeal under Va. Code § 58.1-3983.1. See P.D. 10-103.

In its final determination, the City acknowledges some of the property previously taxed was exempt from the M&T tax, but instead of making adjustments to correct the erroneous assessments, it asks the Taxpayer to file new amended returns. The Taxpayer applied for a correction of the assessments by timely filing amended property tax returns and has responded to the City's request for additional information. As such, it has fulfilled its responsibilities under Va. Code § 58.1-3980. By failing to correct the assessments it has acknowledged are erroneous, the City has not fulfilled its obligation under Va. Code § 58.1-3980.

Further, when a locality discovers that any local tax has not been assessed or was under assessed for any tax year of the three preceding tax years, Va. Code § 58.1­-3903 requires the local assessing officer to assess the taxes. With respect to the 2013 and 2014 tax years, the Taxpayer filed what it believed to be correct returns. If the City disagrees with the assessment, it is the Commissioner of the Revenue's responsibility to make assessments, not request amended returns from the Taxpayer.

Accordingly, I am remanding this case back to the City with instruction to fulfill its obligation under Virginia law to correct the assessments for the 2010 through 2014 tax years based on its determination. Once the assessments are adjusted by the City, the Taxpayer, if it is not satisfied with such assessments, may file an appeal with the City under either Va. Code § 58.1-3980 or § 58.1-3983.1 within the time prescribed by law. If the Taxpayer files a local appeal under Va. Code § 58.1-3983.1 and is not satisfied with the City's final determination, it may file an appeal with the Department. In lieu of going through the local appeals process again, the City, at its discretion, may issue a final local determination under Va. Code § 58.1-3983.1 in response to the Taxpayer's refund request allowing the Taxpayer to file directly with the Department if it so desires. See P.D. 11-124.

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/1-5983539058.M