A county investigated and partially denied my amended-return refund claim for local business property tax -- can I appeal that response straight to the Department, or do I have to go through a local appeal first?

Plain-English summary

This is a "Notice of Jurisdiction" ruling -- the Department deciding a procedural threshold question before ever reaching the merits of a tax dispute, and in the process clarifying (and tightening) how localities must handle refund claims for local business taxes going forward.

A company running open-pit quarry mines (with operations in other Virginia localities and another state as well) filed amended Business Tangible Personal Property (BTPP) tax returns for 2017 through 2019, arguing that most of its equipment should have been taxed only under the separate Machinery and Tools (M&T) tax -- which applies specifically to mining machinery -- rather than under the broader BTPP tax. After visiting the site, the County concluded the company was really operating as a "processor" (not purely a miner), agreed to remove only the genuinely mining-specific equipment from the returns, and issued partial refunds for the rest. The company then tried to appeal the remaining refund denial straight to the Department.

The Department stopped to ask a threshold question: was the County's letter actually a "final local determination" the Department had jurisdiction to review, or something else? The Department concluded it was something else. A refund claim based on a taxpayer's own belief that it made a mistake on an earlier return is part of the ordinary self-reporting tax system -- it isn't a formal local appeal. When a locality investigates that kind of claim (here, through a site visit) and responds, that response is really the locality's ASSESSMENT of the correct tax due, not a final determination on an appeal that was never filed in the first place. Treating an audit-style refund review as if it were already a final appealable determination would let localities skip the actual local appeals process -- including the taxpayer's right to have the matter reconsidered up the chain, typically all the way to the local Commissioner of the Revenue -- and risks passing off ordinary audit findings as something with more procedural finality than they actually have.

So the Department drew a clear two-step line going forward: (1) when a taxpayer's refund claim is investigated and denied in whole or in part, the taxpayer must first file a LOCAL appeal with the locality itself (under Va. Code § 58.1-3980 or § 58.1-3983.1); (2) only after the locality thoroughly addresses the taxpayer's arguments and issues an actual final local determination can either side bring the substantive dispute to the Department. Because the company here skipped straight from the County's refund response to a Department appeal, the Department sent the matter back down, instructing the company to file the proper local appeal first. Notably, the Department also said this ruling SUPERSEDES two of its own earlier rulings (P.D. 11-124 and P.D. 19-62) to the extent they could be read to let a locality collapse a refund denial and a final determination into a single response, and confirmed it will apply the same two-step approach to BPOL (business license) tax refund disputes as well.

What this means for you

Any business that files an amended local tax return or refund claim and gets a partial or full denial

Don't try to skip straight to a Department appeal. A locality's response to your refund claim -- even one based on a real investigation or site visit -- is legally an assessment, not a final determination. You need to file a genuine local appeal first (generally under Va. Code § 58.1-3980 or § 58.1-3983.1) and get the locality's actual final determination before the Department has jurisdiction to review the substance of your dispute.

Businesses and tax professionals relying on P.D. 11-124 or P.D. 19-62 for how local refund/appeal procedure works

Those rulings have been superseded on this point -- don't rely on any reading of them that would let a locality treat a refund-claim response as a combined denial-and-final-determination. This ruling's two-step process (local appeal first, then Department appeal) now controls.

Local Commissioners of the Revenue and other local tax officials handling refund claims

You have discretion either to simply grant a taxpayer's refund claim outright, or to conduct a verification review (like an audit or site visit) -- but if you deny the claim in whole or in part after review, that response is an assessment. The taxpayer is then entitled to a genuine local appeal process, including the chance to have the matter reconsidered by senior local officials, before the dispute can go to the Department.

Businesses with BPOL (business license) tax refund disputes

The Department confirmed it will apply this same two-step approach to BPOL refund claims under Va. Code § 58.1-3703.1(5)(a), which already treats a denied refund as triggering the taxpayer's right to a local appeal.

Common questions

Q: I filed an amended local business tax return seeking a refund, and the locality partially denied it after an audit or site visit -- can I appeal that directly to the Department?
A: No. That response is legally an assessment, not a final local determination. You must first file a local appeal with the locality (under Va. Code § 58.1-3980 or § 58.1-3983.1) and get an actual final determination before the Department has jurisdiction over the substantive dispute.

Q: Does a locality have to investigate every refund claim before granting or denying it?
A: No -- a locality has discretion to simply grant a refund claim consistent with the self-reporting nature of the tax system, or to conduct a verification review (like an audit or site visit) first. Either way, if the claim is denied in whole or in part after review, the taxpayer is still entitled to the normal local appeals process.

Q: Does this ruling change how prior Department guidance on this topic should be read?
A: Yes -- this determination expressly supersedes P.D. 11-124 and P.D. 19-62 to the extent they could be read to let a locality combine a refund denial with a final local determination in a single response.

Q: Does this two-step rule apply to BPOL (business license) tax refund disputes too?
A: Yes -- the Department said it will apply the same standard to BPOL tax refund claims appealable under Va. Code § 58.1-3703.1(5)(a), which already treats a denied refund as an appealable event triggering the local appeal right.

Citations and references

• Va. Code § 58.1-3980 (local tax refund/correction procedure)
• Va. Code § 58.1-3983.1 (local business tax appeal process: local appeal first, then Department appeal)
• Va. Code § 58.1-3703.1(5)(a) (BPOL tax: a denied refund is an appealable event triggering the local appeal right)
• P.D. 11-124 (7/1/2011) (prior ruling on locality discretion regarding refund requests -- superseded on the combined-denial/final-determination point by this ruling)
• P.D. 19-62 (6/17/2019) (same, superseded on the same point)

Subject

Tangible: Administration - Notice of Jurisdiction, Responsibilities of Local Officials

Source

• Landing page: Virginia Laws, Rules & Decisions
• Ruling: P.D. 22-87

Original ruling text

April 28, 2022

Re: Notice of Jurisdiction

Taxpayer: *

Locality Assessing Tax: *

Business Tangible Personal Property (BTPP) Tax

Dear *:

This notice of jurisdiction is issued upon the application for correction filed by you on behalf of * (the “Taxpayer”), with the Department. The Taxpayer appeals the partial denial of refunds of Business Tangible Personal Property (BTPP) tax by *** (the “County”) for the 2017 through 2019 tax years.

The following determination is based on the facts presented to the Department summarized below. The Code of Virginia sections and public document 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 operated open pit quarry mines in the County. It also had mining operations in other Virginia localities and in * (State A). The Taxpayer filed amended BTPP tax returns for the 2017 through 2019 tax years, claiming it was only subject to the Machinery and Tools (M&T) tax on machinery and tools used in its mining operations and that all other assets were exempt from local property taxation. Based on a site visit, the County issued a letter to the Taxpayer concluding that it was a processor and all of its equipment not used in mining was subject to the BTPP tax. As such, the County removed the mining equipment from the Taxpayer’s returns and issued partial refunds. The Taxpayer appealed to the Department, contending that it is due the remaining refunds because it was not subject to BTPP tax as a mining operation.

ANALYSIS

The Department has re-examined the policy that when a locality receives a refund request from a taxpayer for local business taxes applicable to the Department under Virginia Code § 58.1-3983.1, the locality as the discretion to simply deny the request of issue a final determination appealable directly to the Department. See Public Document (P.D.) 11-124 (7/1/2011). On June 9, 2021, the County issued a letter in response to the Taxpayer’s amended returns. A local appeal, however, had not been filed. Amended returns or refund claims seeking to correct mistakes in a taxpayer’s own filings are not appeals. In fact, this letter was effectively the County’s response to the audit it conducted to verify the Taxpayer’s refund claim. Once issued, this response constituted an assessment by the County, appealable by the Taxpayer under Virginia Code § 58.1-3980 or § 58.1-3983.1.

In a self-reporting tax system, taxpayers have the initiative to report their tax liabilities based on the applicable tax law and the relevant facts and circumstances as they exist. A refund claim initiated by a taxpayer who believes it made mistakes in its original filing is still a part of this self-reporting process. Based on the analysis above, the Department is inclined to clarify its policy to say that when a locality receives a refund claim based on errors a taxpayer believes it previously made, the locality has the discretion to 1) simply grant the request, consistent with the self-reporting nature of the system; or 2) perform a verification process, such as an audit. Should the locality choose to perform a review, fundamental due process requires that the taxpayer be informed of the results of that review, and if the claim is denied in whole or in part, also be informed of the reasons for such denial.

Should a locality be given the discretion to proceed directly to issue a final determination in response to a refund claim, there is a risk that audit responses will be passed off as final local appeal determinations, circumventing the spirit and policy of having a local appeals process. Such a procedure is not permitted when localities choose to conduct audits not involving refund claims, so the procedure should be no different for audits conducted to verify refunds. In each case, the goal is to establish the taxpayer’s correct tax liability. The local appeals process affords taxpayers another opportunity to present facts and legal analysis that they or the locality may not have had the opportunity to consider during the audit process. Further, the local appeals process should also afford taxpayers the opportunity to have their case re-examined by senior management at the local level, all the way up the chief assessing officer, usually a local Commissioner of the Revenue. Such supervisory oversight acts as a check and balance on the process.

Therefore, once a taxpayer receives a response from a locality indicating that their refund claim has been denied in whole or in part, the taxpayer may proceed to file a local appeal under Virginia Code § 58.1-3980 or § 58.1-3983.1. This procedure is also in accord with the BPOL appeals process which treats denied refunds as appealable events that trigger a taxpayer’s right to file a local appeal. See Virginia Code § 58.1-3703.1 5 a.

DETERMINATION

In this case, the County issued a response to the Taxpayer’s filing of amended BTPP returns to claim refunds and the Taxpayer appealed to the Department. The Taxpayer, however, must first submit an appeal to the County. The County must then thoroughly review and address any and all facts and arguments presented by the Taxpayer and issue a final determination, which the Taxpayer may then appeal to the Department under Virginia Code § 58.1-3983.1 if it still disagrees with the outcome.

To the extent any previous ruling, including P.D. 11-124 and P.D. 19-62 (6/17/2019) can be interpreted to allow localities to combine a denial of a refund with a local final determination, this determination supersedes and nullifies such interpretations. The analysis as set forth in this determination will govern the local appeals process as it relates to refund claims of local mobile property tax and local business taxes over which the Department has appeals jurisdiction. Further, the Department will apply the same standard to refund claims for Business, Professional and Occupational License (BPOL) tax eligible for appeals under Virginia Code § 58.1-3703.1.

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/3940.B

Related Documents

11-124

19-62