November 14, 2024
Re: Appeal of Final Local Determination
Taxpayer: *****
Locality Assessing Tax: *****
Business Tangible Personal Property Tax
Machinery and Tools 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 assessments of business tangible personal property (BTPP) tax issued to it by the ***** (the “County”) for the 2015 through 2024 tax years.
The following determination is based on the facts presented to the Department summarized below. The Code of Virginia sections and regulations cited are available online at law.lis.virginia.gov. The public documents cited are available at tax.virginia.gov in the Laws, Rules, & Decisions section of the Department’s website.
FACTS
The Taxpayer operated an ice cream business in the County. On its 2023 Business Filing return filed with the County, the Taxpayer claimed status as a manufacturer. As a result, the listed equipment was initially assessed at Machinery and Tools (M&T) tax rates. Under review, however, the County disallowed the Taxpayer’s claimed manufacturer designation and issued an assessment for additional BTPP tax due.
The Taxpayer verbally appealed to the County and a site visit was conducted. Subsequent to the site visit, the County issued a final determination, concluding that the Taxpayer’s operations did not constitute manufacturing. The Taxpayer appealed to the Department, contending that it was a manufacturer. The Taxpayer also requested that this qualification be retroactively applied to reduce its BTPP tax liability for the 2015 through 2022 tax years.
ANALYSIS
Application for Correction
As an initial matter, the Department observes that the Taxpayer’s appeal was filed under Virginia Code § 58.1-1821 rather than under Virginia Code § 58.1-3983.1. Applications for correction filed under Virginia Code § 58.1-1821 are appropriate only for taxes administered by the Department. The BTPP tax is not administered by the Department, but rather by the Virginia localities themselves.
Virginia Code § 58.1-3980 provides that any person aggrieved by an assessment of local taxes “may, within three years from the last day of the tax year for which such assessment is made, or within one year from the date of the assessment, whichever is later, apply to the commissioner of the revenue or such other official who made the assessment for a correction thereof.” Under this procedure, if the taxpayer disagrees in whole or in part with the local assessing officer’s determination, the taxpayer may then seek correction with the circuit court under the provisions of Virginia Code § 58.1-3984.
Virginia Code § 58.1-3983.1 B 1 provides that any person assessed with a “local business tax . . . may appeal such assessment within one year from the last day of the tax year for which such assessment is made, or within one year from the date of such assessment, whichever is later, to the commissioner of the revenue or other assessing official.” Under this provision, if the taxpayer’s appeal is denied in whole or in part by the local assessing official, the taxpayer may, within 90 days of the date of the final local determination, appeal to the Department.
The Department has declined to address appeals involving local BTPP tax unless the taxpayer files them under Virginia Code § 58.1-3983.1. See, e.g., Public Document (P.D.) 22-145 (10/7/2022). For other reasons discussed below, the Department has determined that it does not have jurisdiction over this appeal at this time. Therefore, the Department declines to address whether a taxpayer may amend an appeal to change the section of the Code of Virginia under which they are applying for relief.
Local Appeals Process
As discussed above, taxpayers assessed with BTPP tax may appeal to the locality under either Virginia Code § 58.1-3980 or Virginia Code § 58.1-3983.1. If a taxpayer wishes to appeal an assessment from a locality to the Department, it must first file a local administrative appeal pursuant to the process set forth in Virginia Code § 58.1-3983.1 B and the Guidelines for Appealing Local Business Taxes (the “Guidelines”), issued as P.D. 04-28 (6/25/2004). Once a proper local appeal has been filed, the locality must undertake a full review of the taxpayer’s claims and issue a written determination setting forth the facts and analysis in support of the locality’s decision. Pursuant to Virginia Code § 58.1-3983.1 D, only when a final local determination has been issued can a taxpayer file an administrative appeal with the Department if it wishes to contest any of the locality’s conclusions. Alternatively, a taxpayer may file an appeal with the Department if its appeal with the locality has been pending for more than one year and it provides the locality with at least 30 days written notice. See Virginia Code § 58.1-3983.1 B 6.
Under Virginia Code § 58.1-3983.1 B 2 and § 1.4 of the Guidelines, a taxpayer’s local application for review must be in writing and must sufficiently identify the taxpayer, the tax period covered by the challenged assessment, the amount in dispute, the remedy sought, each alleged error in the assessment, the grounds upon which the taxpayer relies, and any other facts relevant to the taxpayer’s contention. The Taxpayer explains that he visited the County’s offices to appeal in person after he received the 2023 assessment. The Taxpayer states that he did not file a written appeal.
In response to the Taxpayer’s verbal appeal, the County conducted a site visit and issued a purported final local determination, concluding that the Taxpayer’s operations did not qualify as manufacturing. The letter contained a reference to the Taxpayer’s appeal rights but did not contain the full notice described in § 1.7.3 of the Guidelines. The County referred to previous letters it had issued to the Taxpayer and stated that it was “reaffirming” its earlier decisions.
DETERMINATION
There is no indication that a proper local appeal as to the 2023 tax year has ever been filed with the County. Accordingly, if the Taxpayer continues to disagree with the assessment for the 2023 tax year, it may file a local appeal under Virginia Code § 58.1-3980 or § 58.1-3983.1. If the County has now issued an assessment for the 2024 taxable year and the Taxpayer disagrees with that assessment as well, the Taxpayer should also include that year in its local appeal.
If the Taxpayer files a local appeal, it is incumbent on the County to issue a final local determination addressing the facts, assertions and authorities submitted by the Taxpayer. See § 1.7.3. of the Guidelines. The final local determination must also be signed by the Commissioner of the Revenue or an express designee and include the required statement referencing the Taxpayer’s appeal rights. See id. If the County issues a final determination and the Taxpayer disagrees with the outcome, then the Taxpayer may appeal to the local circuit court under Virginia Code § 58.1-3980 or to the Department under Virginia Code § 58.1-3983.1. Until the local appeals process is completed, the Department does not have jurisdiction to decide the Taxpayer’s appeal on the merits.
In addition, it appears that the Taxpayer has not previously requested that the County apply the manufacturer designation to prior tax years. If the Taxpayer is also attempting to seek a refund of BTPP taxes erroneously paid for the 2015 through 2022 tax years based on an incorrect classification, the Taxpayer should first make such request in accordance with the County’s local ordinances and the Commissioner of the Revenue office’s filing requirements. If the Taxpayer’s refund request is denied in whole or in part, the Taxpayer may then follow the local appeals process described above to the extent it disagrees with the County’s conclusions.
If you have any questions regarding this determination, you may contact ***** in the Office of Tax Policy, Appeals and Rulings, at ***** or *****.
Sincerely,
James J. Alex
Tax Commissioner
Commonwealth of Virginia
AR/5017.X