Can the Virginia Department of Taxation waive penalty and interest on a local transient occupancy tax assessment?

Plain-English summary

A taxpayer who operated a short-term rental property said a third party was supposed to handle remitting local transient occupancy tax on her behalf, but no returns were ever filed. When the county found out, it assessed unpaid transient occupancy tax for three tax years, plus penalty and interest. The taxpayer asked the state Department of Taxation to waive the penalty and interest, arguing the missed filings weren't her fault.

The Department had to decline -- not on the merits of whether her excuse was good enough, but because it simply has no authority to even hear the case. The Department's jurisdiction to review local tax appeals is limited by statute to a specific, defined list: local business taxes (like the machinery and tools tax, business tangible personal property tax, merchant's capital tax, and consumer utility tax) and local mobile property taxes (personal property tax on things like airplanes, boats, campers, and trailers). The transient occupancy tax isn't on either list, so the Department has no jurisdiction over it at all -- a conclusion it had already reached in a 2007 ruling on the same point. Separately, and independently, even for local taxes the Department can review, a different statute makes clear that penalty and interest waivers for "not the taxpayer's fault" situations are decided by local officials (the commissioner of the revenue for filing-related fault, the treasurer for payment-related fault) -- the Department has no authority to second-guess or override that local determination either. With both avenues closed, the Department told the taxpayer to take her waiver request directly to the county.

What this means for you

Short-term rental hosts and hotel/lodging operators with a local transient occupancy tax dispute

The Virginia Department of Taxation cannot hear your appeal at all -- transient occupancy tax disputes, including penalty and interest waiver requests, must go directly to the local jurisdiction (county or city) that issued the assessment, typically through its commissioner of the revenue or treasurer's office.

Anyone who relied on a third party (property manager, booking platform, agent) to handle local tax filings

If that third party fails to file or remit, the responsibility -- and any resulting penalty/interest dispute -- still runs through the locality, not the state. Contact the local taxing authority directly to explain the situation and request relief; don't assume a state-level appeal is available as a backstop.

Anyone unsure whether a local tax dispute belongs at the state or local level

Only specific local business taxes (machinery and tools, business tangible personal property, merchant's capital, consumer utility) and local mobile property taxes (aircraft, boats, campers, RVs, trailers) can be appealed to the Department of Taxation. Transient occupancy tax, BPOL tax in some contexts, and most other local taxes generally stay entirely within the local government's own appeal process -- check which category your tax falls into before filing at the state level.

Common questions

Q: Can I appeal a local transient occupancy tax assessment to the state Department of Taxation?
A: No. The Department's jurisdiction over local tax appeals is limited to specific local business taxes and local mobile property taxes; transient occupancy tax isn't included, so the Department cannot hear these appeals at all.

Q: Can the Department waive penalty and interest on my local tax bill?
A: Generally no -- for local taxes where the Department does have jurisdiction, the authority to waive penalty and interest for "not the taxpayer's fault" situations belongs to local officials (the commissioner of the revenue for filing faults, the treasurer for payment faults), not the Department.

Q: Where should I go instead if I have a transient occupancy tax penalty dispute?
A: Contact the local taxing jurisdiction (the county or city) that issued the assessment directly -- they can tell you their own process for requesting a waiver or otherwise disputing the penalty and interest.

Q: My rental agent/property manager was supposed to file and pay this tax for me -- does that matter?
A: It may matter to the local jurisdiction's fault determination (whether the failure was "not your fault"), but it doesn't create any avenue for a state-level appeal -- that determination is made locally, not by the Department.

Citations and references

• Va. Code § 58.1-3983.1 A, D (Department's limited local-tax appeal jurisdiction)
• Va. Code § 58.1-3916 (local fault-based penalty/interest waiver; decided by local officials)
• P.D. 07-141 (9/5/2007) (transient occupancy tax outside Department jurisdiction)
• P.D. 16-65 (4/29/2016) (Department cannot review local fault determinations)
• P.D. 10-213 (related prior ruling)

Source

• Landing page: Virginia Laws, Rules & Decisions
• Ruling: P.D. 23-60

Original ruling text

May 24, 2023

Re: Appeal of Final Local Determination

Dear *:

This notice of jurisdiction is issued upon the application for a waiver filed by you (the “Taxpayer”) with the Department of Taxation. The Taxpayer seeks the abatement of penalty and interest included with an assessment of local transient occupancy tax issued by (the “County”) for the 2019 through 2021 tax years.

The following determination is based on the facts presented to the Department summarized below. The Code of Virginia sections 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 Taxpayer operated a short-term rental property in the County during the tax years at issue. She states that remitting transient occupancy tax was the responsibility of a third party, but no returns were submitted. As a result, the County issued assessments for unpaid transient occupancy tax, including penalties and interest. The Taxpayer requests that the penalty and interest be waived.

ANALYSIS

Under Virginia Code § 58.1-3983.1 D, the Department’s jurisdiction is limited to appeals from final local determinations concerning local business and mobile property tax assessments. Local business taxes include the machinery and tools tax, business tangible personal property tax, merchant’s capital tax, and consumer utility tax. See Virginia Code § 58.1-3983.1 A. Local mobile property taxes include the tangible personal property tax on airplanes, boats, campers, recreational vehicles, and trailers. The local transient occupancy tax is not a local business tax or a local mobile property tax. As such, the Department does not have jurisdiction to address appeals involving the local transient occupancy tax. See Public Document (P.D.) 07-141 (9/5/2007).

Further, under Virginia Code § 58.1-3916, penalty and interest for failure to file a local tax return or pay a local tax may not be imposed when such failure was not the fault of the taxpayer, or was the fault of the commissioner of revenue or the treasurer, as the case may be. This statute also grants the treasurer the power to make determinations of fault relating exclusively to failure to pay a tax. Determinations of fault relating exclusively to failure to file a return are reserved for the local commissioner of the revenue. In localities that do not have a treasurer or commissioner of the revenue, the local governing body may delegate the responsibility to make such determinations to the appropriate local taxing official. Virginia Code § 58.1-3916, however, does not authorize the Department to review the locality’s finding of fault. See P.D. 16-65 (4/29/2016).

DETERMINATION

The Taxpayer’s request for the waiver of penalty and interest for the 2019 through 2021 tax years was not eligible for review by the Department because the Department lacks jurisdiction over transient occupancy tax matters and because the Department does not have the authority to grant waivers of penalty and interest included with local tax assessments generally. The Taxpayer should contact the local taxing jurisdiction that issued the assessment for instructions as to how to request a waiver.

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/4353.B

Related Documents

07-141

10-213

16-65