August 10, 2021
Re: Appeal of Final Local Determination
Taxpayer: *****
Locality Assessing Tax: *****
Business Tangible Personal Property 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 assessments of business tangible personal property (BTPP) tax issued to the Taxpayer by ***** (the “City”) for the 2017, 2018, and 2019 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 documents cited are available online at www.tax.virginia.gov in Laws, Rules, and Decisions section of the Department’s website.
FACTS
The Taxpayer acquired items of BTPP when it purchased several franchise restaurant locations in the City. The Taxpayer used the purchase price of the property as the fair market value (FMV) for purposes of computing the BTPP tax due to the City. Under audit, the City determined the FMV by using a percentage of the original cost and issued assessments. The Taxpayer appealed to the City, contending that the assessed value did not reflect the true FMV. In its final determination, the City concluded that it had properly assessed the BTPP tax based on a percentage of the equipment’s original cost. The Taxpayer appealed to the Department, contending the City improperly estimated the FMV of the property.
ANALYSIS
All tangible personal property, unless declared intangible under the provisions of Virginia 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.” This provision of the Constitution contains the presumption that the General Assembly’s prescribed valuation method will both standardize valuation practices across all the local governments in the Commonwealth and result in something approximating FMV. Virginia Code § 58.1-3103 specifically charges local commissioners with the responsibility of assessing property at fair market value.
Fair market value is generally 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). If the valuation methodology employed by a locality results in an assessment well above fair market value, the locality may use another methodology prescribed in Virginia Code § 58.1-3507 B. See Public Document (P.D.) 05-129 (8/3/2005).
Virginia Code § 58.1-3503 A 18 specifies that for most items of tangible personal property that is used in a trade or business, FMV is to be ascertained either by a percentage or percentages of original cost. Although the General Assembly has provided no definition for the term “original cost,” it has consistently been interpreted to mean the cost paid by the original purchaser from a manufacturer or dealer and not the cost paid by subsequent purchasers. See 2009 Op. Va. Att’y Gen 18, P.D. 12-27 (3/6/2012), P.D. 13-20 (2/15/2013), 2014 Op. Va. Att’y Gen. 20, and P.D. 16-171 (8/29/2016).
DETERMINATION
Under Virginia Code § 58.1-3503 A 18, the BTPP sold to the Taxpayer is to be valued by using a percentage or percentages of original cost in order to determine FMV. The valuation method employed by the City in this case is consistent with the statutory requirements.
In the matter of property valuation, the burden of proof lies with the Taxpayer to rebut the presumption of correctness. See Virginia Code § 58.1-3983.1 B 4. In order to do so, the Taxpayer must show by clear preponderance of evidence that the property is assessed at more than fair market value. See Tidewater Psychiatric Institute v. the City of Virginia Beach, 256 Va. 136, 501 S.E.2d 761 (1998).
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/3599-C