June 21, 2022
Re: Appeal of Final Local Determination
Taxpayer: *****
Locality Assessing Tax: *****
Business Tangible Personal Property 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 denial of refunds of business tangible personal property (BTPP) tax paid to ***** (the “County”) for the 2017 through 2020 tax years.
The following determination is based on the facts presented to the Department summarized below. The 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 is a producer of ready to serve meals for airliners. It filed its BTPP tax returns classifying itself as business service. The Taxpayer subsequently filed refund claims pursuant to Virginia Code § 58.1-3980 with the County for the 2017 through 2020 tax years, contending it should have been classified as a manufacturer for purposes of the BTPP tax.
The County denied the refund requests for the 2017 and 2018 tax years on the basis that they were filed outside the statute of limitations. The County further denied the refund requests for the 2019 and 2020 tax years, concluding that the Taxpayer was a business service. The Taxpayer appealed the County’s determination to the Department, contending it was exempt from BTPP taxation because it was a manufacturer.
ANALYSIS
In a letter to the County dated August 10, 2021, previously issued with respect to the 2012 through 2016 tax years, the Department explained that it is not procedurally correct for the County to issue a final local determination in response to a taxpayer’s initial refund claim. The Department explained that it had re-examined the policy that when a locality receives a refund request from a taxpayer, the locality has the discretion to simply deny the request or issue a final determination appealable directly to the Department. See P.D. 11-124 (7/1/2011). The Department clarified its policy to say that when a locality receives a refund claim based on errors a taxpayer believes it previously made, the locality has the discretion to 1) simply grant the request; or 2) perform a verification process, such as an audit. Should the locality choose to perform a review, fundamental due process requires that the taxpayer be informed of the results of that review, and if the claim is denied in whole or in part, also be informed of the reasons for such denial.
The procedural background of this case is like the situation that was addressed in the August 2021 letter to the County. There, the Taxpayer requested a refund for the 2012 through 2016 tax years on the basis that it had erroneously paid BTPP taxes to the County. The County later issued a purported “Final Local Determination Letter” in response to the Taxpayer’s “appeal application.” The Taxpayer, however, had not filed an appeal. Amended returns or refund claims seeking to correct mistakes in a taxpayer’s own filings are not appeals. The letter instructed the County that in such cases, it should either grant the request, or perform a verification process. If the County choose to perform a verification process, the taxpayer should be informed of the results of that review and then should be given the opportunity to appeal the County’s decision. Like the previous case, here the County proceeded to issue a final local determination in response to an initial refund claim, not a local appeal.
The statute of limitations issue raised by the County in this case illustrates the significance of following proper local appeals procedures. Section 4-4-1 of the County’s ordinances provides that “Any person who has paid a local levy or levies and who is entitled to a refund may apply for a refund of such taxes in accordance with Section 4-4-2 within the time provided by Virginia law.” Virginia Code § 58.1-3990 provides that “No refund shall be made in any case when application therefor was made more than three years after the last day of the tax year for which such taxes were assessed.” The earliest tax year at issue in this case was 2017. Therefore, to have made a timely refund claim, the Taxpayer had to have submitted it to the County on or before December 31, 2020. The records show that the claim was filed on December 29, 2020, prior to the expiration of the statute of limitations. By treating the refund claim as an “appeal,” however, the County erroneously invoked the one year statute of limitations to file an appeal as set forth in Virginia Code § 58.1-3983.1 B 1 to conclude that the Taxpayer’s 2017 and 2018 refund claim was filed outside the statute of limitations. Until the County issued its response denying the refund claim, however, the one year statute of limitations to appeal had not yet begun to run.
DETERMINATION
In this case, the Taxpayer filed a refund claim, the County issued a response, and the Taxpayer should now be afforded an opportunity to participate in the local appeals process. Because the County has issued a response, the Taxpayer may now file a local appeal under Virginia Code § 58.1-3980 or § 58.1-3983.1. If the County issues a final determination and the Taxpayer disagrees with the outcome, then the Taxpayer may appeal to the Department under Virginia Code § 58.1-3983.1 or the local circuit court through the process starting under Virginia Code § 58.1-3980. Until the local appeals process is completed, the Department does not have jurisdiction to decide the Taxpayer’s appeal on the merits.
If you have any questions regarding this determination, you may contact ***** in the Office of Tax Policy, Appeals and Rulings, at ***** or by email at *****.
Sincerely,
Craig M. Burns
Tax Commissioner
AR/4125.Y