Tax Type
BTPP Tax
Description
Outside appraisal to determine if the assessment for the property in dispute reflects fair market value
Topic
Basis of Tax
Local Power to Tax
Taxpayers' Remedies
Date Issued
08-30-2012
August 30, 2012
Re: Appeal of Final Local Determination
Taxpayer: *****
Locality: *****
Business Tangible Personal Property (BTPP) Tax
Dear *****:
This final state determination is issued upon the application for correction filed by ***** (the "Taxpayer") with the Department of Taxation. The Taxpayer appeals a final local determination by the ***** (the "City") upholding a BTPP tax audit assessment for the 2011 tax year.
The BTPP tax is imposed and administered by local officials. Virginia Code § 58.1-3983.1 D authorizes the Department to issue determinations on taxpayer appeals of BTPP tax assessments. On appeal, a BTPP 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 document cited are available on-line in the Tax Policy Library section of the Department of Taxation's website, located at www.tax.virginia.gov.
FACTS
The City values BTPP at a percentage of the total original cost. The Taxpayer timely filed a BTPP tax return for the 2011 tax year and paid the tax. The City issued an assessment of additional BTPP tax on computers and peripherals based on a percentage of the total original cost. In February 2012, the Taxpayer filed an administrative appeal with the City and provided an appraisal that valued the computers and peripherals at an amount lower than the City's appraisal. In its appeal, the Taxpayer argued that the City's valuation method valued the Taxpayer's computers and peripherals in excess of its fair market value. The City denied the Taxpayer's request to reduce the value of its BTPP in its April 2012 final determination letter. The Taxpayer appeals the City's final local determination, asserting that the City's method of valuation does not reflect the actual fair market value of the computers and peripherals.
ANALYSIS
Taxation of Tangible Personal Property
All tangible personal property, unless declared intangible under the provisions of Va. Code § 58.1-1100 et seq., is reserved for local taxation by Article X, § 4 of the Constitution of Virginia. Article X, §§ 1 and 2 of the Constitution of Virginia provide that all property, unless specifically exempted within the provisions of the Constitution, shall be taxed at a uniform rate among classes, and that "all assessments of real estate and tangible personal property shall be at their fair market value to be ascertained as prescribed by general law." Virginia Code § 58.1-3103 specifically charges local commissioners of the revenue with the responsibility of assessing property at fair market value.
Fair market value is a subjective judgment. Generally, it is defined as the price a property will bring when offered by one who desires, but is under no obligation, to sell it, and the buyer has no immediate necessity to purchase it. See Tuckahoe Women's
Club v. County of Richmond, 119 Va. 734, 101 S.E.2d 571 (1958).
Statutorily, the General Assembly has offered some guidance to commissioners of the revenue as to how to best determine fair market value. Virginia Code § 58.1-3503 specifies that for most items of tangible personal property, fair market value is to be ascertained either by a percentage or percentages of original cost, or in the case of trucks and cars and certain other vehicles, by means of recognized pricing guides. Further, this statute stipulates that:
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- Methods of valuing property may differ among the separate categories, so long as each method used is uniform within each category, is consistent with requirements of this section and may reasonably be expected to determine actual fair market value as determined by the commissioner of revenue or other assessing official . . . .
Virginia Code 58.1-3503 A 16 provides that "programmable computer equipment and peripherals used in business which shall be valued by means of a percentage or percentages of original cost to the taxpayer, or by such other method as may reasonably be expected to determine the actual fair market value." In this case, the City valued the Taxpayer's computers and peripherals by a percentage of the original cost. The Taxpayer contends that the appraisal is a more accurate reflection of the actual fair market value.
Appraisals
By their very nature, appraisals are subjective and may or may not provide objective evidence as to the true fair market value of a property. An appraisal is an opinion of fair market value made by a professional appraiser. In other words, an appraisal is a professional judgment made by an expert. Appraisers of tangible personal property utilize numerous different valuation concepts depending on the purpose of the appraisal engagement.
In Public Document (P.D.) 05-129 (8/3/2005), the Department found that the use of appraisals in determining fair market value is indeed a valuable tool. In that case, the taxpayer had employed the use of an outside appraisal firm and the county declined to review the appraisal in making its assessment. The firm's appraisal was significantly lower than the county's assessment. The Department held that the county was in error in its assertion that it could not consider the professional appraisal in making its assessment. The Department has also upheld a locality's assessment where it performed due diligence in hiring an outside appraiser to value the property in dispute. See P.D. 07-103 (7/27/2007).
DETERMINATION
Virginia Code § 58.1-3503 A 16 requires that programmable computer equipment and peripherals used in business be valued by means of a percentage or percentages of original cost to the taxpayer, or "by such other method as may reasonably be expected to determine the actual fair market value." An independent appraisal may be a method that yields an actual fair market value.
Accordingly, I am remanding this case back to the City to consider the outside appraisal offered by the Taxpayer to determine if the assessment for the property in dispute reflects fair market value. If the City should determine that an appraised value is appropriate, P.D. 07-2 (1/10/2007) provides guidance on the proper method to revalue the assets in order to use the percentage of the original cost valuation method in subsequent years.
If you have any questions regarding this determination, you may call ***** in the Office of Tax Policy, Appeals and Rulings, at *****.
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- Sincerely,
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Craig M. Burns
Tax Commissioner
AR/1-508734049.B
Rulings of the Tax Commissioner