Tangible: Machinery & Tools - Mining Defined
August 3, 2023
Re: Appeal of Final Local Determination: Business Tangible Personal Property (BTPP) Tax
& Machinery and Tools (M&T) 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 the partial denial of a refund of Business Tangible Personal Property (BTPP) tax paid by the Taxpayer to ***** (the “County”) for the 2017 through 2019 tax years.
The BTPP tax is imposed and administered by local officials. Virginia Code § 58.1-3983.1 D 1 authorizes the Department to issue determinations on taxpayer appeals of BTPP tax assessments. On appeal, a local 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 document 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 operated a business that extracted limestone from open pit quarries in the County. It also had operations in other Virginia localities and in ***** (State A). The Taxpayer filed amended returns of BTPP and Machinery and Tools (M&T) tax for the 2017 through 2019 tax years, claiming it was only subject to the M&T tax on machinery and tools used in what the Taxpayer characterized as its mining operation in the County and any other assets that were not such machinery and tools were not subject to local property tax because they were considered intangible assets as defined by Virginia Code § 58.1-1101.
As a result of the Taxpayer’s refund claim, the County conducted an audit and concluded that the Taxpayer’s operations were properly characterized as processing rather than mining and, thus, the assets the Taxpayer was seeking to exempt generally remained subject to local property tax as BTPP. The County did correct certain items on the return, however, and issued a partial refund. The Taxpayer appealed to the Department, contending that it is due the remaining refund because it was a mining business, not a processor.
ANALYSIS
Tangible and Intangible Personal Property
Article X, § 4 of the Virginia Constitution provides that all tangible personal property shall be segregated for local taxation in such a manner as the General Assembly provides for by law. Virginia Code § 58.1 1101 classifies certain property that is tangible in fact as intangible and segregates that property for state taxation only. Intangible property consists of, in part:
Capital which is personal property, tangible in fact, used in manufacturing (including, but not limited to, furniture, fixtures, office equipment and computer equipment used in corporate headquarters), mining, water well drilling, radio or television broadcasting, dairy, dry cleaning or laundry businesses. Machinery and tools, motor vehicles and delivery equipment of such businesses shall not be defined as intangible personal property for purposes of this chapter and shall be taxed locally as tangible personal property according to the applicable provisions of law relative to such property . . . . [Emphasis added.]
As such, tangible personal property used in mining would be classified as intangible property that was not subject to the BTPP tax, but any machinery and tools used in mining would be subject to the machinery and tools (M&T) tax. See Virginia Code § 58.1-3507 A. The County’s position is that the Taxpayer is a processor and thus, while its M&T used in processing is subject to M&T tax under Virginia Code § 58.1-3507 like the M&T of a mining business, its other property does not qualify to be excluded from local property taxation under Virginia Code § 58.1-1101.
Mining and Quarrying
In its final determination, the County concluded that the Taxpayer was not a mining business because it was operating a quarry, not a mine. The Department has recently addressed this distinction for purposes of the local BTPP and M&T tax. In Public Document (P.D.) 23-43 (4/12/2023), the Department determined that the term “mining” in Virginia Code § 58.1-1101 includes the extraction of limestone from a quarry. The Department reasoned that quarrying is a more specific term for the mining of stone based on dictionary definitions in the absence of an applicable statutory definition, and that including quarrying with the broader definition of mining was consistent with the NAICS industry descriptions and Virginia’s regulatory regime applicable to mine safety.
In support of its position, the County cited several cases that neither the locality nor the Taxpayer presented in the appeal that resulted in the issuance of P.D. 23-43. These cases are Beury v. Shelton, 151 Va. 28, 144 S.E. 629 (1928) and Thomas v. Carmeuse Lime and Stone, Inc. 86 F. Supp. 3d 490 (W.D. Va. 2015).
In Beury, the grantors conveyed two tracts of land but reserved the right to mine all metals and minerals. The issue before the court was whether the reservation included the right to remove limestone from the land. In making its final determination, the County relied on certain language the court quoted from a case decided in Ireland in 1858 that a mine is “usually . . . a cavern or subterraneous place, containing metals or minerals, and not a quarry; and mineral means ordinarily metallic fossil bodies, and not limestone.” See Beury, 151 Va. at 40, 144 S.E.2d at 632. Ultimately, however, the outcome in Beury did not turn on any formal definition of the terms. In fact, the judge from the Irish case quoted by the court in Beury conceded that limestone could come within the meaning of mines and minerals if it appeared to be the intention of the parties. See id.
Beury was examining the intention of the parties in a real property transaction, not the definition of terms appearing in a statute. As such, additional considerations impacted the outcome of Beury that would not be relevant in this appeal. The court in Beury acknowledged that the language of a grant is to be taken most strictly against the grantor and that in “doubtful cases, the meaning of the words ‘minerals’ will be restricted to that given it by the custom of the country in which the contract is to operate.” [Emphasis supplied.] The Court in Beury observed that the land was situated in an area where limestone was present everywhere under the soil. The Court reasoned that, if the deed were interpreted to include limestone in the reservation of mineral rights, the deed would have effectively reserved the entire parcel for the grantor and conveyed nothing to the grantee. See id. at 41, 144 S.E.2d at 633. Clearly, this could not have been the intent of the parties, and local customs have little, if any, bearing on how broadly applicable state statutes are interpreted.
In Thomas, the issue was whether a deed allowed the owner of mineral rights on a property to remove limestone via the destruction of the top soil. The court quoted the Beury case, stating that “[t]he only way [limestone] is removed, or can be removed, is by quarrying, which requires the taking off of any top soil that may lie above it and blast it off . . . .” Thomas, 86 F. Supp. 3d at 499. As such, the county relied on this case to assert that the removal of limestone from an open pit is quarrying. The court in Thomas, however, was not attempting to define the removal of limestone as quarrying in any formal way. Rather, it was observing that the only way that the limestone could be removed was through the removal of topsoil and that the “[d]eed’s references to quarrying demonstrates that the parties contemplated destruction of the surface.” Id. at 500. In any event, the mere fact that the court in Thomas referred to the removal of limestone as quarrying is not inconsistent with the Department’s determination in P.D. 23-43. As the Department stated in that case, quarrying is a more specific term for type of mining of stone.
DETERMINATION
As the Department determined in P.D. 23-43, mining includes the extraction of limestone from a quarry for purposes of Virginia Code § 58.1-1101. As such, any M&T used by the Taxpayer to extract limestone at its location in the County, including any M&T involved in preparation activities customarily performed at a mine site, would be subject to the M&T tax. Property not used in these mining processes would be exempt from local property taxation, unless the Taxpayer was also operating a separately taxable business and such assets were used in that business. See also County of Chesterfield v. BBC Brown Boveri, 238 Va. 64, 380 S.E.2d 890 (1989) and Coca-Cola Bottling Co. of Roanoke, Inc. v. County of Botetourt, 259 Va. 559, 526 S.E.2d 746 (2000).
Therefore, I am remanding this case to the County in order to make a determination as to what tangible property was used for mining processes and thus was subject to the M&T tax, what property was exempt from local property taxation, and what property may have been used in a separately taxable business, if any. The County must then issue any additional refund due for the 2017 through 2019 tax years and also issue a new final local determination. If the Taxpayer continues to disagree with the results of that determination, it may appeal to the Department within 90 days.
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/4364.B