February 9, 2015
Re: Appeal of Final Local Determination
Taxpayer: *****
Locality Assessing Tax: *****
Machinery and Tools 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. You appeal the assessment of Machinery and Tools (M&T) tax issued to the Taxpayer by the ***** (the "City") for the 2013 tax year.
The M&T tax is imposed and administered by local officials. Virginia Code § 58.1-3983.1 authorizes the Department to issue determinations on taxpayer appeals of machinery and tools tax assessments. On appeal, the machinery and tools tax assessment is deemed prima facie correct, i.e., the local assessment will stand unless the taxpayer proves 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 Taxpayer, a manufacturer located in the City, placed certain pollution control equipment into service prior to January 1, 2013. This equipment was not certified as pollution control equipment by the Department of Environmental Quality (DEQ) until March 2013. The Taxpayer filed an amended M&T tax return for the 2013 tax year requesting the removal of the pollution control equipment. The City declined to remove this equipment for the 2013 tax year.
The Taxpayer filed an appeal with the City. In its response, the City concluded the exemption did not apply because the pollution control equipment was certified after the 2013 tax day. The Taxpayer appeals the City's final determination, contending that the pollution control equipment at issue was exempt from the M&T tax because it was in service as of the 2013 tax day.
ANALYSIS
Under Va. Code § 58.1-3660, certified pollution control equipment and facilities are defined to be a separate class of real or personal property for purposes of local taxation. For tax years beginning on or after January 1, 2011, Va. Code § 58.1-3660 A exempts such property from local taxation. See Chapter 671, 2009 Acts of Assembly. Prior to the legislative change, the governing body of any locality was authorized to exempt or partially exempt certified pollution control equipment and facilities from local taxation.
Virginia Code § 58.1-3660 B defines certified pollution control equipment and facilities as:
any property, including real or personal property, equipment, facilities, or devices, used primarily for the purpose of abating or preventing pollution of the atmosphere or waters of the Commonwealth and which the state certifying authority having jurisdiction with respect to such property has certified to the Department of Taxation as having been constructed, reconstructed, erected, or acquired in conformity with the state program or requirements for abatement or control of water or atmospheric pollution or contamination.
Pursuant to Va. Code § 58.1-3511 A, the situs for the assessment and taxation of tangible personal property is in all cases the locality in which the property is physically located on the tax day. Virginia Code § 58.1-3515 provides that the tax day is January 1 of each year. It further states that "[t]he status of all persons, firms, corporations and other taxpayers liable for taxation on any of such property shall be fixed as of the date aforesaid in each year and the value of all such property shall be taken as of such date . . . ." Therefore, because certified pollution control equipment is segregated as a separate class of personal property, it must be located in the taxing jurisdiction as of January 1 of the tax year.
In this case, the pollution control equipment was not certified on January 1, 2013. In Lawrence Carr, Jr. v. W. H. Forst, Tax Commissioner of the Commonwealth of Virginia, 249 Va. 66, 453 S,E.2d 274 (1995), the Virginia Supreme Court stated that if a statute is clear and unambiguous, a court must accept its plain meaning and not resort to extrinsic evidence or rules of construction. Under Va. Code § 58.1-3660, only certified pollution control equipment may be exempt from the personal property tax.
Because the date at which property deemed to be subject to property tax of a particular year is the tax day, then pollution control equipment must be certified as of the tax day in order to claim the exemption.
Certification
The Taxpayer contends that the DEQ determined that certification of pollution control equipment occurs as of the first date the equipment is placed in service regardless of when the certification is issued. The Taxpayer has provided a letter from a trade association to DEQ in support of the purported position of DEQ. The letter memorializes a meeting between the DEQ and the trade association in which it stated that the DEQ could recognize that the exemption for certified property begins when put in use, not at the time the certification is issued. While this letter may reflect potential action by DEQ, it has no legal binding authority.
Sales and Use Tax Rulings
The Taxpayer also asserts that Public Documents (P.D.) 11-172 (10/6/2011), P.D. 04-108 (9/14/2004) and P.D. 95-76 (4/3/1995) support its position that the pollution control exemption could be applied retroactively. These three public documents address the sales tax exemption for pollution control equipment. Local property taxes have their own characteristics, separate and distinct from the retail sales and use tax. See P.D. 13-63 (5/10/2013).
Uniformity
Article X, §1 of the Constitution of Virginia provides that “[a]ll taxes shall be levied and collected under general laws and shall be uniform upon the same class of subjects . . ." The Taxpayer contends that the City's disallowance of the pollution control equipment exemption is unconstitutional because otherwise similarly situated taxpayers who have pollution control equipment in operation could qualify for the exemption if they merely receive certification at an earlier date.
The City's interpretation of pollution control equipment exemption as it related to the date of certification does not discriminate against any class of taxpayers. Once any taxpayer with pollution control equipment receives its certification for pollution control equipment, it would receive the exemption for any tax years on or after the next tax day. Property tax is a tax on value and is required to be levied by reference to a specific date on which that value is ascertained. For the tax to be uniform, the date must be the same for everyone in the locality. See 1993 Op. Va. Att'y Gen.243.
Machinery and Tools
The Taxpayer asserts that even if the pollution control equipment did not qualify for the exemption for the 2013 tax year, it was not taxable as machinery and tools. In P.D. 08-88 (6/16/2008), the Department held that pollution control equipment not used in manufacturing is not machinery and tools. However, a determination as to whether pollution control equipment was necessary in the Taxpayer's manufacturing business and was connected with the operation of machinery actually and entirely used in the manufacturing process is a factual matter. See P.D. 11-110 (6/17/2011) and 1987-1988 Op. Va. Att’y Gen. 590. Such a determination is a factual matter for the locality to decide.
DETERMINATION
Based on the clear language of the statute, the Department finds that pollution control equipment must be certified by the tax day of the year claimed in order for a taxpayer to claim the pollution control equipment exemption from personal property tax. Because the Taxpayer did not receive its certification for the 2013 tax year prior to January 1, 2013, it cannot claim the pollution control equipment exemption from personal property tax for the 2013 tax year.
However, the Department is unable to determine if the pollution control equipment at issue was used in the Taxpayer's manufacturing process based on the documentation provided. The City, having examined the subject equipment, must make a determination based on the principles set forth in this determination.
Accordingly, I am remanding this case back to the City with instruction to consider whether or not any of the pollution control equipment at issue was machinery and tools. If additional documentation is required, it should be provided directly to the City within 30 days of any request. If the Taxpayer is unable to provide adequate documentation, the assessment would be considered correct. If you have any questions about this determination, you may contact ***** in the Office of Tax Policy, Appeals and Rulings at *****.
Sincerely,
Craig M. Burns
Tax Commissioner
AR/1-5823330138.B