August 3, 2018
Re: Appeal of Final Local Determination
Taxpayer: *****
Locality: *****
Business Tangible Personal Property Tax
Dear *****:
This final state determination is issued pursuant to your request for reconsideration filed on behalf of ***** (the “Taxpayer”). You seek a reconsideration of the Department's determination letter of February 8, 2018 addressing the Business Tangible Personal Property Tax (BTPP) tax assessments issued to the Taxpayer by the ***** (the “City”) for the 2012 through 2015 tax years.
The BTPP tax is imposed and administered by local officials. Virginia Code § 58.1-3983.1 authorizes the Department to issue determinations on taxpayer appeals of BTPP tax assessments. On appeal, the BTPP 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 cited are available on-line in the Laws, Rules and Decisions section of the Department’s web site, located at wvvw.tax.virginia.gov.
FACTS
In its February 8, 2018 determination, the Department held that the Taxpayer had not provided clear and cogent evidence that the tangible property at issue belonged to and was actually and exclusively occupied and used by a wholly owned exempt hospital. It further stated that the Taxpayer would need to show that the property of a physical therapy office that it operated was actually owned by the hospital. In addition, the Department determined that if the physical therapy office was a separate legal entity or if the Taxpayer in fact owned the tangible property at issue, the tangible property located at the physical therapy office would not qualify for an exemption from the BTPP tax.
The Taxpayer seeks a reconsideration contending that the Department’s determination letter misstated facts and used the incorrect standard in its remand to the City.
ANALYSIS
Factual Misstatement
The Taxpayer contends that because the Department referred to ***** as the “Taxpayer”, ***** as the “Hospital”, and ***** as the “Subsidiary,” it implied that they were separate legal entities.
Virginia Code § 58.1-204 provides that the Department is required to publish regulations and written rulings or other interpretations of Virginia law that are of interest to taxpayers and tax practitioners while preserving confidential taxpayer information as required in Virginia Code § 58.1-3. The Department maintains the confidentiality of taxpayers and other entities in its determination letters by redacting the actual names of such entities and by referring to them by generic terms such as “Taxpayer,” “Subsidiary” or “Hospital”. Use of these common terms does not necessarily imply the legal status of these entities.
In its first appeal to the Department, the Taxpayer identified what appeared to be three different entities in describing its activities in the City. The Taxpayer has the burden of proving that it qualifies for an exemption. See Virginia Code § 58.1-205. Absent clear evidence of the Taxpayer’s corporate structure, the Department was unable to determine whether the property at issue was eligible for the exemption under Virginia Code § 58.1-3606 A 5.
Standard
In its February 8, 2018 determination, the Department remanded the case back to the City in order for the Taxpayer to provide the City with evidence that tangible property located at the physical therapy office “was actually owned by the hospital”. The Taxpayer contends that the Department applied the wrong standard, and the property must merely belong to, not actually be owned by the hospital.
Virginia Code § 58.1-3606 A 5 provides that property “. . . belonging to . . . and exclusively . . . used by . . . hospitals” is exempt. The City asserts that because Virginia Code § 58.1-3606 A 5 uses the term “hospital” and the phrase “hospitals operated by nonstock corporations,” a distinction was contemplated between a hospital and an entity that owns a hospital. As such, it argues not all property of an entity that owns a hospital is exempt.
The Taxpayer contends that the phrase “belonging to” in Virginia Code § 58.1-3606 A 5 was defined in Board of Supervisors of Wythe County v. Medical Group Foundation, Incorporated, 204 Va. 807, 134 S.E.2d 258 (1964). In that case, the Court opined that “belonging to” requires that the hospital have some interest or estate in the property, not absolute ownership. In Wythe, the hospital leased real property from the non-profit foundation that was exempt from real property tax. As such, the real property was exempt from property tax because the hospital had a leasehold interest in the real property. Thus, under Wythe, the standard for property belonging to an entity is merely whether a taxpayer has an interest or estate in the property at issue.
The City argues that Wythe was decided prior to the Constitution of Virginia being amended in 1971 to require that exemptions be strictly construed against a taxpayer. The Virginia Supreme Court has cited Wythe in opinions issued after 1971, but has not altered the definition of “belonging to”. See Mariner’s Museum v. City of Newport News, 255 Va. 40, 495 S.E.2d (1998) and Smyth County Community Hosp. v. Town of Marion, 259 Va. 328, 527 S.E.2d 401 (2000). In addition, in Old Time Gospel Hour, Inc. v. City of Lynchburg, 8 Va. Cir. 73 (1983), a Virginia circuit court expressly upheld that “belonging to” may mean less than absolute ownership, such as the absolute right of use. While an asset would clearly belong to the entity that owned it, the Department acknowledges that the Virginia Supreme Court’s standard for property only requires an entity is to have an interest or estate in that property.
DETERMINATION
Because it was providing health and medical programs, the physical therapy office appears to have met the requirement of the dominant purpose test because it promoted the charitable purpose of providing health and medical programs for the care of the sick and injured. The Taxpayer must provide sufficient evidence to the City that the tangible property located at the physical therapy office belonged to the hospital in order to qualify for the exemption provided by Virginia Code § 58.1-3606 A 5. As such, I am remanding the case back to the City to review the Taxpayer’s information 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/11627.B