January 7, 2020
Re: Request for Advisory Opinion
Business Tangible Personal Property Tax
Dear *****:
This is in response to your letter in which ***** (the “County”) requests an advisory opinion regarding the application of the business tangible personal property (BTPP) tax to aeroponics.
The BTPP tax is imposed and administered by local officials. Virginia Code § 58.1-3983.1 authorizes the Department to issue advisory opinions on local business tax matters. The following opinion has been issued subject to the facts presented to the Department summarized below. Any changes in facts or the introduction of new facts may lead to a different result.
The Code of Virginia sections and public document cited are available online at www.tax.virginia.gov in the Laws, Rules & Decisions section of the Department’s website.
FACTS
The County has requested an advisory opinion to two questions. The questions and the Department’s opinion are enumerated below.
OPINION
1) If a locality exempts farm equipment by local ordinance, does that extend automatically to aeroponics that grow, package and wholesale their products?
Article X, § 4 of the Constitution of Virginia provides that all real and tangible personal property shall be segregated for local tax in such a manner as the General Assembly provides by law. Virginia Code § 58.1-3505 A segregates farm animals, grains and other feeds, agricultural products, farm machinery, farm implements and equipment as a separate class of tangible personal property. The governing body of any locality may, by ordinance, exempt in whole or in part from taxation, or provide a different rate of tax upon, all or any such property. See Virginia Code § 58.1-3505 B.
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.” If a County, by local ordinance, exempts all farm equipment from local BTPP tax, then the exemption must apply to all such equipment in the County. The Attorney General has found that growing and harvesting is clearly farming, but whether equipment is used for farming or manufacturing is a fact specific inquiry that must be decided on a case by case basis. See 1982-1983 Op. Atty Gen. Va. 536.
Aeroponics is the growing of plants by suspending their roots in the air and spraying them with nutrient solutions. See Merriam-Webster.com, https://www.merriam-webster.com/dictionary/aeroponics (retrieved 10/21/2019). Aeroponics differs from traditional farming in that it does not use soil as a growing medium and is usually conducted indoors. Absent a local ordinance specifically defining the type of equipment eligible for a farm exemption, the question becomes whether a local assessing officer can clearly differentiate equipment based on where it is used or what growing medium is utilized. It is incumbent upon the locality to make such a determination.
Equipment used to package or sell produce would not automatically qualify for the locality’s exemption. Ascertaining whether equipment was used for farming, however, would be a factual determination of the locality.
2) Can a locality through local ordinance create a definition of farm and/or farm equipment to apply local exemptions?
Virginia Code § 58.1-3505, and previous opinions of the Attorney General, do not define the term farming. The Department previously determined that whether to classify a business as a farm for purposes of the BTPP tax exemption is a locality’s decision. See Public Document (P.D.) 17-15 (3/10/2017), and P.D. 18-41 (3/30/2018). Because a locality may exempt farm equipment by ordinance, it may also define the term farm equipment for purposes of the exemption.
In a 1991 opinion, the Attorney General opined, “No constitutional or statutory provision prevents a commissioner of the revenue from changing the method of assessment of a particular class of personal property, as long as the new method meets the uniformity requirement of Article X, § 1, and can reasonably be expected to determine fair market value of the property as required by Article X, § 2 and § 58.1-3503 (A)(17). 1991 Op. Va. Att’y Gen. 302, 303.
Thus, in determining whether aeroponics equipment qualifies for an exemption, the locality must insure all farm equipment is taxed at a uniform rate. If it can conclude that aeroponics equipment, which produces the same products as traditional farming, is a separate class of personal property, then it may impose an appropriate assessment of tax. If it cannot, the equipment should be treated the same as other farm equipment.
If you have any questions regarding this response, you may contact ***** in the Department’s Office of Tax Policy, Appeals and Rulings, at *****.
Sincerely,
Craig M. Burns
Tax Commissioner
AR/2112C