July 11, 2018
Re: Appeal of Final Local Determination
Taxpayer: *****
Locality: *****
Business Tangible Personal Property 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 an assessment of business tangible personal property (BTPP) tax issued by the ***** (the “City”) for the 2014 through 2017 tax years.
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 at www.tax.virginia.gov in the Laws, Rules and Decisions section of the Department’s website.
FACTS
The Taxpayer, a hospital organized as a limited liability company (LLC), operated at a definite place of business in the City. The City issued BTPP tax assessments to the Taxpayer for the 2014 through 2017 tax years. The Taxpayer appealed, contending that it was exempt from the BTPP tax because as a disregarded entity, it acquired the tax-exempt status of its parent. The City issued a final determination denying the Taxpayer’s appeal on the basis that no ordinance had been passed exempting the tangible property. The Taxpayer appeals the City’s final local determination, contending that the tangible property at issue was exempt from the BTPP tax.
ANALYSIS
Article X, § 4 of the Constitution of Virginia provides that all real and tangible personal property shall be segregated for local taxation in such a manner as the General Assembly provides by law. Article X, § 6 (7)(f) of the Constitution of Virginia states that exemptions of property from taxation as authorized under § 6 must be strictly construed. This provision has been consistently enforced in Virginia Supreme Court decisions. See, for example, Department of Taxation v. Wellmore Coal Corp., 228 Va. 149, 320 S.E.2d 509 (1984).
As authorized by the Constitution of Virginia, the General Assembly established a number of exemptions from real and personal property taxes. Specifically, Virginia Code § 58.1-3606 A 5 exempts in pertinent part:
Property belonging to and actually and exclusively occupied and used by . . . hospitals . . . , conducted not for profit but exclusively as charities (which shall include hospitals operated by nonstock corporations not organized or conducted for profit but which may charge persons able to pay in whole or in part for their care and treatment).
The Virginia Supreme Court has consistently ruled that exemptions from taxation are the exception rather than the rule and as such, they must be strictly construed. If there is any doubt as to whether an exemption applies, it must be resolved in favor of the taxing authority, and the burden is upon the taxpayer to show that it comes within the exemption. See Commonwealth v. Manzer, 207 Va. 996, 154 S.E.2d 185 (1967).
Prior to January 1, 2003, the Constitution authorized the General Assembly to exempt from local taxation real and personal property owned by certain nonprofit organizations and used for religious, charitable, patriotic, benevolent, cultural or public park or playground purposes by classification or by designation by a three-fourths vote in each house.
The constitutional amendment that took effect on January 1, 2003 allows local governing bodies to grant by ordinance exemptions from local property taxation, subject to restrictions and conditions provided by general law enacted by the General Assembly. Although the constitutional amendment eliminated the General Assembly’s authority to exempt such property, it allows the General Assembly to impose by general law restrictions and conditions on the localities’ authority to exempt such property.
As such, Virginia Code § 58.1-3651 was passed during the 2003 session of the General Assembly. Virginia Code § 58.1-3651 A provides that:
Pursuant to subsection 6 (a)(6) of Article X of the Constitution of Virginia, on and after January 1, 2003, any county, city, or town may by designation or classification exempt from real or personal property taxes, or both, by ordinance adopted by the local governing body, the real or personal property, or both, owned by a nonprofit organization that uses such property for religious, charitable, patriotic, historical, benevolent, cultural, or public park and playground purposes.
The City contends that pursuant to Virginia Code § 58.1-3651 A, any tangible property acquired by businesses after January 1, 2003 is not exempt from the BTPP tax unless it was made exempt by local ordinance. As such, because the City did not pass an ordinance exempting tangible property after January 1, 2003, the tangible property acquired through the purchase of the medical practices was subject to BTPP tax. The Taxpayer asserts that Virginia Code § 58.1-3651 was merely procedural and that any property exempt by statute or the Constitution of Virginia prior to January 1, 2003 remained exempt after such date regardless as to whether a locality passed an exemption ordinance.
In Rapidam Baptist Camp & Conf. Ctr. v. Madison County, 70 Va. Cir 309 (2006) and Attorney General Opinion 03-049 (8/5/2003), both the Circuit Court and Attorney General opined that neither the amendment to Subsection 6 (a)(6) of Article X of the Constitution of Virginia nor Virginia Code § 58.1-3651 repeal any property tax exemptions that existed prior to January 1, 2003. The City argues that the tangible property at issue could not be exempt because it was not in existence as of January 1, 2003. The exemption as it existed prior to January 1, 2003 is not for specific property; rather, it applies to classification or designation exemptions. See Virginia Code § 58.1-3651 D. Property that was exempt as of beginning of 2003 property belonging to and exclusively used by non-profit hospitals is a classification exemption. See Virginia Code § 58.1-3606 A 5. As such, any tangible property acquired by non-profit hospitals exempt from property tax after January 1, 2003 would be exempt from the BTPP tax.
DETERMINATION
Because tangible property acquired by non-profit hospitals after January 1, 2003 would be exempt from BTPP tax, I find that the tangible property at issue was exempt from the BTPP tax. As such, I am remanding this case back to the City to adjust the assessments for the 2014 through 2017 tax years in accordance with this determination.
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/1598.B