October 7, 2022
Re: Appeal of Final Local Determination
Taxpayer: *****
Locality: *****
Machinery and Tools Tax
Business Tangible Personal Property Tax
Dear *****:
This notice of jurisdiction is issued upon the application for correction filed by ***** (the “Taxpayer”), with the Department. The Taxpayer appeals a determination issued by ***** (the “City”) concerning whether all of its tangible property was subject to the machinery and tools (M&T) tax and exempt from the business tangible personal property (BTPP) tax for the 2016 through 2019 tax years because it was utilized in processing.
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
In Public Document (P.D.) 20-134 (8/11/2020), the Department determined that the Taxpayer was a processor subject to the M&T tax on equipment used in processing and that all other property not used in processing was subject to the BTPP tax at the appropriate rate. The case was remanded back to the City in order to adjust the Taxpayer’s liability to reflect which equipment should have been classified as business tangible personal property and which equipment should have been classified as machinery and tools.
The City reviewed the Taxpayer’s property and classified some as business tangible property and some as machinery and tools. A refund was issued based on this reclassification. The Taxpayer appealed to the City under Virginia Code § 58.1-3980, contending that all its property was used in processing and thus should be taxed as machinery and tools. The City issued a final determination denying the Taxpayer’s appeal and instructing the Taxpayer that any additional appeals were to be filed with a circuit court pursuant to Virginia Code § 58.1-3984. The Taxpayer then simultaneously appealed the City’s determination to the City and to the Department, contending that the City did not properly classify certain equipment as machinery and tools.
ANALYSIS
Jurisdiction
Under § 1.4 of the Guidelines for Appealing Local Business Taxes, issued as 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.” The denial of a refund by a local taxing authority would constitute an assessment for purposes of filing an appeal under Virginia Code § 58.1-3983.1. See P.D. 10-103 (6/18/2010).
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 seek correction with the circuit court under the provisions of Virginia Code § 58.1-3984.
Virginia Code § 58.1-3983.1 B 1 provides that any person assessed with a “local business tax . . . 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.” Under this provision, if the taxpayer’s appeal is denied in part or completely by the local assessing official, the taxpayer may, within 90 days, appeal the assessment to the Department.
The City asserts that the Department lacked jurisdiction to address the Taxpayer’s appeal because it was submitted under Virginia Code § 58.1-3980. The Taxpayer contends that the City did not clarify whether its final determination was being issued under Virginia Code § 58.1-3980 or Virginia Code § 58.1-3983.1. The Taxpayer also argues that if the Department agrees that it lacks jurisdiction, then the Taxpayer should still be allowed to proceed to appeal to the City under Virginia Code § 58.1-3983.1.
In P.D. 18-197 (12/6/2018), the Department determined that if a taxpayer appeals an assessment to a locality under Virginia Code § 58.1-3980, the Department lacks jurisdiction to address the appeal. In this case, the Taxpayer’s appeal to the City stated “…pursuant to Code of Virginia § 58.1-3980, the Taxpayer hereby appeals the entire amount of the revised assessment.” The City’s final determination was in response to this appeal. As such, their final determination was clearly made pursuant to Virginia Code § 58.1-3980 as evidenced by its instruction to the Taxpayer that any further appeals needed to be submitted to the proper circuit court as required by Virginia Code § 58.1-3984.
The Taxpayer contends that if the Department determines that it lacks jurisdiction to address its appeal, then the City still has jurisdiction under Virginia Code § 58.1-3983.1 to respond to the appeal. In P.D. 19-62 (6/17/2019), a taxpayer filed a refund request with a locality under Virginia Code § 58.1-3980. The locality issued a final local determination under Virginia Code § 58.1-3980 and instructed the taxpayer to appeal to the circuit court under Virginia Code § 58.1-3984. The Department determined that the Taxpayer could still file an appeal to the locality under Virginia Code § 58.1-3983.1 because the final local determination issued by the locality was actually the denial of a refund which was an assessment that could be appealed through either Virginia Code § 58.1-3980 or Virginia Code § 58.1-3983.1.
In this case, the City adjusted the Taxpayer’s refund in accordance with the instructions issued by the Department in P.D. 20-134. The Taxpayer then appealed this refund denial “pursuant to Code of Virginia § 58.1-3980.” The difference between the facts of this case and the facts of P.D. 19-62 is that here, the locality issued a partial refund in response to the Department’s instructions in P.D. 20-134. In doing so, the City effectively took action as to the Taxpayer’s refund claim. It was this action that triggered the Taxpayer’s appeal rights to the locality. In P.D. 19-62, however, the locality did not take action on the Taxpayer’s claim until it issued a letter denying the claim. In that case, it was not until the taxpayer received the letter, styled inaccurately as a final local determination, that an event had occurred which the taxpayer could appeal to the locality.
Department Instructions
The Taxpayer requests that if the Department denies its appeal for lack of jurisdiction, the Department should instruct the City that it must still accept the Taxpayer’s appeal under Virginia Code § 58.1-3983.1 and that the City be held to its position in its final local determination. As stated above, the City has already addressed the Taxpayer’s appeal that was submitted under Virginia Code § 58.1-3980. Virginia law does not provide taxpayers with an avenue to submit another local appeal in order to correct a jurisdictional error. Further, to the extent any future characterizations of any proceedings before the City matter, the Department declines to rule prospectively on any future arguments the parties may make regarding the implications of such characterizations.
DETERMINATION
The Taxpayer appealed the 2016 through 2019 assessments under Virginia Code § 58.1-3980, which grants jurisdiction to the circuit court, not the Department, for local tax appeals. Therefore, the Department does not have jurisdiction to address the Taxpayer’s appeal. Rather, the appeal should have been made to a circuit court. Moreover, the Department declines to instruct the City to accept the Taxpayer’s appeal under Virginia Code § 58.1-3983.1, nor will it make any prospective rulings as to how the City may characterize such a filing or as to the implications of any characterization the City may make.
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/4161.B