A county denied my manufacturer-classification refund claim in a letter, and I appealed straight to the Department -- but the Department says it can't hear my case yet. Why not?

Plain-English summary

A business that produces ready-to-serve meals for airlines had filed its BPOL returns classifying itself as a RETAIL MERCHANT for four consecutive tax years (2017-2020). It later filed refund claims with its county, arguing it should have been classified as a MANUFACTURER instead -- a classification that could carry a different (often lower) tax treatment, including a possible exemption for a manufacturer selling its goods at wholesale from the place of manufacture. The county denied the classification change (via a January 2021 letter), and the taxpayer appealed straight to the Department rather than going through a local appeal first.

The Tax Commissioner found the Department lacked jurisdiction to decide the manufacturer-classification question at all, for two SEPARATE, independently sufficient reasons:

No valid local appeal had been filed. Under Virginia's BPOL appeal framework, a taxpayer has one year from an "appealable event" (which includes a refund denial, an assessment increase, or a classification dispute) to file a LOCAL administrative appeal with the county's assessing officer -- only after the county issues a FINAL LOCAL DETERMINATION on that local appeal can the taxpayer go to the Department. Here, the county's January 2021 letter was actually the FIRST response to the taxpayer's refund request -- meaning it was itself the appealable event that starts the one-year local-appeal clock, not a determination resolving an appeal that had already been filed. Because the taxpayer went straight to the Department instead of filing (and waiting out) a genuine local appeal, no valid final local determination existed yet for the Department to review.

The letter also wasn't properly signed, even if it had followed a real local appeal. Just as in a separate ruling issued the following month on similar facts (P.D. 21-130), a final local determination must generally be signed by the Commissioner of the Revenue (or chief assessing officer) personally, or by someone with a documented EXPRESS delegation of that authority. Here, the county's January 2021 letter was signed by its deputy commissioner of tax compliance; an oath of office was attached, but there was no actual designation showing the Commissioner had delegated final-determination signing authority to that deputy. So even setting aside the first problem, this letter still wouldn't have qualified as a valid final local determination.

Because of both defects, the Department declined jurisdiction over the classification dispute and directed the taxpayer to file (or complete) a proper local administrative appeal with the county, wait for a validly-issued final local determination, and only then bring any unresolved disagreement to the Department.

What this means for you

Businesses filing a BPOL classification-change refund claim with a locality

A locality's response to your very first refund request is generally just an "appealable event" -- NOT a final local determination you can immediately take to the Department. You typically need to file an actual local administrative appeal with the assessing officer first (within one year of that appealable event) and get a real final determination before the Department has jurisdiction.

Businesses that receive a locality's determination letter and plan to appeal to the Department

Before relying on that letter as your ticket to the Department, check two things: (1) did a genuine local appeal actually precede it, and (2) was it signed by the Commissioner of the Revenue/chief assessing officer, or by someone with a documented, express delegation of that authority? Either defect alone can cost you Department jurisdiction and send the matter back to square one locally.

Businesses considering a manufacturer-vs-retailer BPOL reclassification

This ruling doesn't reach the substantive manufacturer-classification question at all -- it was resolved purely on jurisdictional/procedural grounds. If you're pursuing a similar reclassification argument, make sure your PROCEDURE is airtight (proper, timely local appeal; a validly-signed final determination) so your substantive argument actually gets heard.

Common questions

Q: Is a locality's first response to my BPOL refund claim the same thing as a "final local determination" I can appeal to the Department?
A: Generally no. The first response to a refund request is typically the "appealable event" that starts your one-year window to file an actual LOCAL administrative appeal -- only a determination that resolves that local appeal (properly signed) counts as a final local determination the Department can review.

Q: What if the locality's letter was signed by someone other than the Commissioner of the Revenue?
A: It may not count as a valid final local determination unless that person received an EXPRESS, documented delegation of signing authority from the Commissioner of the Revenue or chief assessing officer -- an oath of office alone isn't sufficient evidence of that delegation.

Q: What should I do if the Department says it lacks jurisdiction over my BPOL appeal for procedural reasons?
A: File (or complete) a proper local administrative appeal with your locality's assessing officer within the applicable one-year window, wait for a validly-signed final local determination, and then appeal to the Department if you still disagree with the outcome.

Citations and references

• P.D. 04-28 (6/25/2004) (Guidelines for Appealing Local Business Tax; establishes the local-then-Department two-step appeal process)
• P.D. 18-140 (3/30/2018) (final local determination must be signed by the Commissioner of the Revenue/chief assessing officer, or an expressly-designated delegate)

Subject

Administration : Appeal - Jurisdiction

Source

• Landing page: Virginia Laws, Rules & Decisions
• Ruling: P.D. 21-115

Original ruling text

August 24, 2021

Re: Appeal of Final Local Determination

Taxpayer: *

Locality: *

Business, Professional and Occupational License (BPOL) Tax

Dear *:

This notice of jurisdiction is issued upon the application for correction filed by you on behalf of * (the “Taxpayer”), with the Department of Taxation. The Taxpayer seeks a refund of Business, Professional and Occupational License (BPOL) tax paid to *** (the “County”) for the 2017 through 2020 tax years.

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

FACTS

The Taxpayer was a producer of ready to serve meals for airliners. It filed its BPOL tax returns classifying itself as a retail merchant. The Taxpayer subsequently filed refund claims with the County for the 2017 through 2020 tax years, contending it should have been classified as a manufacturer. The County denied the Taxpayer’s classification request. The Taxpayer appeals to the Department, contending that it was exempt from BPOL taxation as a manufacturer selling its goods at wholesale from the place of manufacture.

ANALYSIS

Virginia Code § 58.1-3703.1 A 5 b provides that any person assessed with a local license tax as a result of an appealable event may file an administrative appeal of the 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 the appealable event, whichever is later, with the commissioner of the revenue or other local assessing official. An appealable event is an increase in the assessment of a local license tax payable by a taxpayer, the denial of a refund, or the assessment of a local license tax where none previously was assessed. An appealable event also includes the appeal of a business classification regardless of whether the taxpayer’s appeal is in conjunction with an assessment, examination, audit or any action taken by the locality.

It appears that the Taxpayer first made the refund claim for the 2017 through 2020 tax years by letter dated December 31, 2020. The County’s letter of January 28, 2021, acknowledged receipt of the Taxpayer’s “appeal” and concluded that the issue had been addressed in a prior determination issued by the County on May 3, 2017.

It appears that the January 2021 letter was the first response to the Taxpayer’s refund request. As such, it constituted the initial denial of the refund, not a determination of a local appeal filed by the Taxpayer. The January 2021 response, therefore, was the appealable event for purposes of filing a local administrative appeal. Because the Taxpayer subsequently appealed directly to the Department, a valid local appeal has not yet been filed nor has a valid final local determination been issued.

In addition, under Title 23 VAC 10-500-710, “local assessing officer” means the Commissioner of Revenue or chief assessing officer or his designee. Therefore, to qualify as a final local determination, the letter should normally be signed by the Commissioner of the Revenue or chief assessing officer and not an employee working at their direction, unless the individual has been expressly designated by the Commissioner of the Revenue or chief assessing officer and evidence of such designation is included with the final local determination. See Public Document (P.D.) 18-140 (3/30/2018). Additionally, Title 23 of the Virginia Administrative Code (VAC) 10-500-710 contains specific language that must be included in any written final determination.

Even if the County’s January 2021 letter had been issued pursuant to a local appeal, it was signed by the County’s deputy commissioner of tax compliance. While the deputy commissioner’s oath of office was attached to the letter, there was no express designation by the County’s Commissioner of the Revenue given to issue final local determinations.

DETERMINATION

I find that the January 2021 letter denying the Taxpayer’s refund request constituted the appealable event for purposes of filing a local administrative appeal. Because the Taxpayer subsequently appealed directly to the Department, a valid local appeal has not yet been filed nor has a valid final local determination been issued as to the 2017 through 2020 tax years.

Moreover, the determination letter issued by the County was not signed by the County’s Commissioner of the Revenue and did not include a designation granting the employee who signed the letter authority to issue a final local determination on the Commissioner’s behalf. Therefore, even if a valid local appeal had been filed, the Department could not consider the letter to be a final local determination.

Further, the Department observes that it is the practice of most, if not all localities, for the Commissioner of Revenue or chief assessing officer to sign final local determination letters. This practice generally reflects the Department’s own appeals process by which the Tax Commissioner signs appeal determinations and official rulings of the Department.

In the Department’s opinion, such a practice is preferred because it helps ensure the highest level of supervisory oversight of the process. Regardless, under no circumstance should an employee who issued an audit determination which becomes the subject of an appeal be permitted to sign the final local determination in the case.

In addition, the Department has observed that localities are uncertain about what constitutes a proper designation by a Commissioner of the Revenue or chief assessing officer. Designations should be signed and notarized and clearly identify the designee and what authority the Commissioner of the Revenue or chief assessing officer is granting such individual. As such, the following is a sample of such a designation:

TO WHOM IT MAY CONCERN:

Under the authority of Title 23 of the Virginia Administrative Code (VAC) 10-500-10 and the Guidelines for Appealing Local Business Tax in Public Document (P.D.) 04-28 (6/25/2004), I hereby delegate to [Insert Name], [Insert Title], the authority to sign final local determination letters on my behalf.

Honorable [Insert Name]

Commissioner of the Revenue

[Insert Locality]

Accordingly, because a valid local appeal has not yet been filed and the purported final local determination letter was not signed by the proper individual, the Department lacks jurisdiction over the Taxpayer’s appeal. If the Taxpayer wishes to pursue its case, it must file a local administrative appeal with the County within one year from the date of the denial of the refund and wait the issuance of a valid final local determination. If the Taxpayer disagrees with the outcome of its local appeal, it may then appeal to the Department for relief. Each party is referred to the Department’s regulations governing the administration of BPOL tax appeals found in Title 23 VAC 10-500-640 et seq . for additional information regarding the process.

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/3770.B

Related Documents

04-28

18-140

19-62