The county hasn't issued a final decision on my manufacturing property tax appeal in over a year -- can I go around the county and appeal directly to the state, and will my manufacturer exemption still hold up?

Plain-English summary

A manufacturer had already been through this fight with its county twice before -- two prior published Department rulings had found that the business tangible property at its facility, apart from equipment tied to a specific government IT and call-center services contract, wasn't subject to local business tangible personal property (BTPP) tax because it supported the company's manufacturing operations elsewhere. The second time, the Department sent the case back ("remanded") to the county, at the county's own request, so it could look at some new issues and issue a fresh final determination for the 2018 tax year. While that was pending, the county separately assessed BTPP tax for 2019 too, which the taxpayer also appealed locally.

More than a year went by with no final determination from the county on either year -- even though, in the meantime, the county had sent the taxpayer an extensive new questionnaire and, based on the responses, started arguing informally that the taxpayer might not really be a "manufacturer" after all. But the county never actually issued a new decision reflecting that theory. Virginia law lets a taxpayer bypass a locality that's been sitting on an appeal for over a year: after giving 30 days' written notice of intent to escalate, the taxpayer can bring the case straight to the Department. That's exactly what happened here, and the Department accepted jurisdiction because no final local determination had ever issued for either year.

On the substance, Virginia treats manufacturing capital as a special state-only intangible category, while a manufacturer's machinery, tools, vehicles, and delivery equipment stay in a separate class taxed locally -- but the two prior rulings had already found this particular company's facility supported its manufacturing activity even though no actual manufacturing happened there. Since nothing showed the company's actual operations had meaningfully changed (aside from removing the government-contract IT/call-center equipment in 2018), the Department applied the same reasoning again, rejected the county's informal doubts (which were never even turned into a real determination), and sent the case back with instructions to strip out only the contract-specific equipment and adjust the assessments accordingly.

What this means for you

Any business whose local tax appeal has been stalled for over a year with no final decision

You don't have to wait indefinitely. Virginia law lets you escalate directly to the Department once a locality has sat on your appeal for more than a year, as long as you give the locality 30 days' written notice first that you intend to do so.

Manufacturers who've already won a favorable classification ruling in a prior year

A prior published Department ruling in your favor carries real weight in later years, as long as your operations haven't meaningfully changed. A locality raising new doubts informally -- without actually issuing a new determination applying them -- generally won't be enough to overturn established precedent on largely the same facts.

Businesses whose facility supports (but doesn't itself perform) manufacturing activities

This ruling reinforces that property at a facility can qualify for manufacturer-related tax treatment even if the manufacturing itself happens somewhere else, as long as the facility's operations genuinely support the manufacturing business rather than constituting a separate line of business.

Common questions

Q: What can I do if my county hasn't issued a final decision on my local tax appeal in over a year?
A: Under Va. Code § 58.1-3983.1 B 6, you can give the locality 30 days' written notice of your intent to appeal directly to the Department, then file that appeal with the state once the notice period passes -- bypassing the stalled local process entirely.

Q: If a locality raises new doubts about my tax classification but never issues a formal decision on them, does that count against me?
A: Not necessarily, based on this ruling. The Department treated the county's informal doubts (raised through a questionnaire, without a resulting new determination) as insufficient to disturb the Department's own prior published rulings on largely unchanged facts.

Q: How does Virginia distinguish between a manufacturer's exempt "manufacturing capital" and its taxable machinery and tools?
A: Manufacturing capital (like furniture, fixtures, and computer equipment used in corporate headquarters) is classified as intangible personal property taxed only by the state, while machinery, tools, vehicles, and delivery equipment used in manufacturing form a separate class of TANGIBLE property that remains subject to LOCAL taxation only.

Citations and references

• Va. Code § 58.1-3983.1 B 6 (Department gains jurisdiction if a local appeal has been pending over a year and the taxpayer gives 30 days' notice)
• Va. Code § 58.1-3983.1 D 1 (Department's authority to decide taxpayer appeals of BTPP tax assessments)
• Va. Code § 58.1-1101 A 2 (manufacturing capital is intangible personal property, taxed by the state only)
• Va. Code § 58.1-3507 A (machinery and tools used in manufacturing are a separate class of tangible property, taxed locally only)
• Va. Const. art. X, § 4 (tangible personal property is reserved for local taxation unless declared intangible)
• P.D. 18-167 (9/26/2018), P.D. 18-212 (12/18/2018), P.D. 19-111 (9/27/2019) (this taxpayer's own three prior published rulings on the same manufacturer-classification issue)

Subject

Tangible Property : Exemption - Manufacturer; Administration : Jurisdiction - One Year Rule

Source

• Landing page: Virginia Laws, Rules & Decisions
• Ruling: P.D. 21-159

Original ruling text

December 28, 2021

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 you on behalf of * (the “Taxpayer”) with the Department of Taxation. The Taxpayer appeals the assessments of business tangible personal property (BTPP) tax issued to it by *** (the “County”) for the 2018 and 2019 tax years.

The BTPP tax is imposed and administered by local officials. Virginia Code § 58.1-3983.1 D 1 authorizes the Department to issue determinations on taxpayer appeals of BTPP tax assessments. On appeal, a local 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 in the Laws, Rules and Decisions section of the Department’s web site, located at www.tax.virginia.gov .

FACTS

The Department has addressed the appeals of BTPP tax issued to the Taxpayer by the County on three prior occasions. See Public Document (P.D.) 18-167 (9/26/2018), P.D. 18-212 (12/18/2018) and P.D. 19-111 (9/27/2019). In P.D. 19-111, the Department remanded the case to the County, at the County’s request, so the County could address new issues and issue a new final local determination with respect to the 2018 tax year. While that review was pending, the County also issued an assessment for the 2019 tax year, which the Taxpayer appealed to the County. When the County did not issue a final local determination as to either tax year within a year, the Taxpayer filed a notice with the County that it intended to file an appeal with the Department. The Taxpayer subsequently filed the appeal, contending that all of its business tangible property located in the County was exempt from BTPP taxation because it was a manufacturer.

ANALYSIS

Jurisdiction

A taxpayer may file an appeal with the Department if its appeal with the locality has been pending for more than one year and it provides the locality with at least 30 days written notice. See Virginia Code § 58.1-3983.1 B 6.

On September 29, 2019, the Department remanded the Taxpayer’s appeal back to the County at its request in order for it to address new issues and to issue a final local determination as to the 2018 tax year. See P.D. 19-111. On November 22, 2019, the Taxpayer appealed the 2019 BTPP tax assessment to the County. No final local determination was issued in either case. On November 25, 2020, the Taxpayer filed notice that it intended to file an appeal of the 2018 and 2019 BTPP tax assessments with the Department because more than one year had passed and no final local determination had been issued. The Taxpayer filed the appeal on March 22, 2021, with the Department, contending that all of its business tangible property located in the County was exempt from BTPP taxation because it was a manufacturer. As permitted by Virginia law, the Department has jurisdiction to address the Taxpayer’s appeal because no final local determinations have been issued.

Manufacturing

All tangible personal property, unless declared intangible under the provisions of Virginia Code § 58.1-1100 et seq., is reserved for local taxation by Article X § 4 of the Constitution of Virginia . Included in the category of tangible property that is declared intangible and subject to state taxation only is “[c]apital which is personal property, tangible in fact, used in manufacturing (including, but not limited to, furniture, fixtures, office equipment and computer equipment used in corporate headquarters) . . . .” See Virginia Code § 58.1-1101 A 2.

The machinery and tools, motor vehicles and delivery equipment of a manufacturing business are not defined as intangible personal property. Such property is to be taxed locally as tangible personal property. Virginia has elected to create a separate classification of tangible personal property for machinery and tools used in manufacturing. Virginia Code § 58.1-3507 A also provides:

Machinery and tools ... used in a manufacturing ... business shall be listed and are hereby segregated as a class of tangible personal property separate from all other classes of property and shall be subject to local taxation only.

In P.D. 18-167 (9/26/2018) and P.D. 18-212 (12/18/2018), the County did not contest that the Taxpayer was a manufacturer for the 2014 and 2017 tax years respectively. Rather, its position was that the Taxpayer was subject to the BTPP tax because its operations in the County were a separate line of business from the manufacturing operations. The Department determined in these two cases that the evidence showed that the Taxpayer’s operations supported its manufacturing activities, and therefore the business tangible property was not subject to the BTPP tax even though no manufacturing actually occurred in the County.

After the issuance of P.D. 19-111, the County sent an extensive questionnaire to the Taxpayer. The County now argues in response to the Taxpayer’s current appeal to the Department that the answers to the questionnaire create doubt as to whether the Taxpayer was a manufacturer. The County, however, did not issue any further determinations as a result of its analysis. The County now believes based on responses to the questionnaire that the Taxpayer was a service provider rather than a manufacturer. The Taxpayer has responded with further explanations to address the County’s assertions.

DETERMINATION

In P.D. 18-167 and P.D. 18-212, the Department determined that the business tangible property located at the Taxpayer’s definite place of business unrelated to the IT and cell center services for the government agency was not subject to the BTPP tax. No evidence has been provided to show that the Taxpayer’s operations changed in any meaningful way after the tax years at issue in P.D. 18-167 and P.D. 18-212, other than the IT and call center service equipment being removed from the facility in August 2018.

Information provided by the Taxpayer indicates that assets related to the IT and call center services for the government agency contract were consistently separately accounted for assessment purposes. Further, the Taxpayer states that such asserts were removed from the facility in August 2018 at the conclusion of the contract. All other asserts in the facility were not subject to the BTPP tax. I am therefore remanding this case to the County with the instruction to remove any assets that were not specifically dedicated to the government agency contract from the list of taxable tangible personal property and adjust the assessments accordingly.

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/3775.B

Related Documents

18-167

18-212

19-111