May 18, 2021
Re: Appeal of Final Local Determination
Taxpayer: *****
Locality: *****
Business, Professional and Occupational License (BPOL) Tax
Business Tangible Personal Property (BTPP) Tax
Dear *****:
This notice of jurisdiction is issued upon the application for correction filed by you on behalf of ***** (the “Taxpayer”), with the Department of Taxation. The Taxpayer appeals the assessments of Business, Professional and Occupational License (BPOL) tax for the 2017 through 2019 tax years and the assessments of Business Tangible Personal Property (BTPP) tax for the 2016 through 2019 tax years issued to the Taxpayer by ***** (the “County”).
The following determination is based on the facts presented to the Department summarized below. The Code of Virginia sections, regulations and public documents cited are available on-line at www.tax.virginia.gov in the Laws, Rules and Decisions section of the Department’s web site.
FACTS
The Taxpayer was a fabricator of countertops. It transformed slabs of raw granite and marble into finished countertops. It was classified as a contractor for purposes of the BPOL tax. In addition, it did not remit BTPP on its fabricating equipment for purposes of the BTPP tax.
As the result of an audit, the County issued assessments of BTPP tax for the 2016 though 2019 tax years to the Taxpayer. The Taxpayer appealed the assessments to the County, contending that its equipment constituted machinery and tools used in manufacturing and should be taxed at the applicable Machinery and Tools (M&T) tax rate. The County requested additional information in order for it to determine whether the Taxpayer was a manufacturer for purposes of both the BTPP and BPOL taxes. Based on the documentation it received and a site visit, the County determined that the Taxpayer should be classified as a retailer in part and a wholesaler in part for purposes of the BPOL tax, and that it was not performing manufacturing. Accordingly, BPOL tax was assessed for the 2017 through 2019 tax years and the BTPP tax assessments were upheld. The Taxpayer appealed the assessments of BTPP and BPOL taxes to the Department asserting that it should be classified as a manufacturer for purposes of the BPOL and BTPP taxes.
ANALYSIS
The Code of Virginia creates a review process designed to encourage resolution of local license tax issues through an appeals process that includes review by the local assessing officer and appeal to the Department. Through this process, a taxpayer who disagrees with an audit assessment may apply to the local assessing officer for review. If the taxpayer is dissatisfied with the results of the local review, the taxpayer may appeal the local decision to the Department, who will make a determination of the issues raised by the taxpayer. See Title 23 of the Virginia Administrative Code (VAC) 10-500-640 and the Guidelines for Appealing Local Business Tax in Public Document (P.D.) 04-28 (6/25/2004).
Under Title 23 VAC 10-500-710 and P.D. 04-28, “local assessing officer” means the Commissioner of Revenue or chief assessing officer or his designee. Therefore, to qualify as a final local determination, the letter should normally be signed by the Commissioner of the Revenue or chief assessing officer and not an employee working at their direction, unless the individual has been expressly designated by the Commissioner of the Revenue or chief assessing officer and evidence of such designation is included with the final local determination. See P.D. 18-140 (3/30/2018) and 19-62 (6/17/2019). Additionally, Title 23 VAC 10-500-710 contains specific language that must be included in any written final determination.
In this case, the Taxpayer appealed the assessments of BTPP tax to the County on October 15, 2019. The County issued two determination letters, one dated April 9, 2020, and a second dated September 24, 2020, each purporting to be in response to the Taxpayer’s appeal of October 15, 2019. Each determination letter was signed by the County’s deputy commissioner of tax compliance. While the deputy commissioner’s oath of office was attached to these determination letters, there was no express designation by the County’s Commissioner of the Revenue given to issue final local determinations.
DETERMINATION
The determination letters issued by the County were not signed by the County’s Commissioner of the Revenue and did not include a designation granting the employee who signed the letter authority to issue a final local determination on the Commissioner’s behalf. Therefore, the Department cannot consider the letters to be final local determinations.
The Taxpayer should be aware, however, that the information provided indicates that it did not file a local appeal with respect to its BPOL classification. The Taxpayer, therefore, should amend its local appeal to include an appeal of its classification for BPOL tax purposes.
After the County receives the Taxpayer’s amended appeal, the County is directed to review the appeal in accordance with the applicable regulations and guidelines and issue a proper final local determination. Once that is done, the Taxpayer will have 90 days to file an appeal with the Department if it disagrees with the outcome of that determination. If the case has been pending with the County for more than one year, the Taxpayer may also appeal to the Department after giving the County the requisite notice.
Further, the Department observes that it is the practice of most, if not all localities, for the Commissioner of Revenue or chief assessing officer to sign final local determination letters. This practice generally reflects the Department’s own appeals process by which the Tax Commissioner signs appeal determinations and official rulings of the Department.
In the Department’s opinion, such a practice is preferred because it helps ensure the highest level of supervisory oversight of the process. Regardless, under no circumstance should an employee who issued an audit determination which becomes the subject of an appeal be permitted to sign the final local determination in the case.
In addition, the Department has observed that localities are uncertain about what constitutes a proper designation by a Commissioner of the Revenue or chief assessing officer. Designations should be signed and notarized and clearly identify the designee and what authority the Commissioner of the Revenue or chief assessing officer is granting such individual. As such, the following is a sample of such a designation:
TO WHOM IT MAY CONCERN:
Under the authority of Title 23 of the Virginia Administrative Code (VAC) 10-500-10 and the Guidelines for Appealing Local Business Tax in Public Document (P.D.) 04-28 (6/25/2004), I hereby delegate to [Insert Name], [Insert Title], the authority to sign final local determination letters on my behalf.
Honorable [Insert Name]
Commissioner of the Revenue
[Insert Locality]
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/3677.B