Rulings of the Tax Commissioner

March 20, 2024

Re:    Appeal of Final Local Determination
Taxpayer : *****
Locality : *****
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 assessment of Machinery and Tools (M&T) tax issued to the Taxpayer by ***** (the “County”) for the 2018 through 2021 tax years. 

The M&T 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 M&T 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 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 operated a business that extracted limestone from open pit quarries in the County. It also had similar operations in other Virginia localities and in ***** (State A). The activities at the site at issue in this case were substantially similar to those described in Public Document (P.D.) 23-43 (4/12/2023), except that at this site, the Taxpayer also manufactured chemical quicklime. 

The Taxpayer filed amended M&T tax returns for the 2017 through 2019 tax years, requesting a refund on the basis that it was only subject to the M&T tax on the machinery and tools directly used in its mining operations and that all other assets involved in the mining operations were exempt from local property taxation. The County denied the refunds by a letter issued in July 2021. The County determined that the Taxpayer was conducting both processing and manufacturing activities at the site, but not mining. The County concluded that all of the equipment involved in the Taxpayer’s processing activities was subject to the M&T tax. 

Subsequently, the County issued assessments for the 2018 through 2021 tax years. The 2018 and 2019 assessments were for some additional equipment that the County claimed the Taxpayer had omitted on their original returns. The 2020 and 2021 assessments resulted from adjustments made to those returns consistent with the determination the County had made as to the prior years’ returns. 

The Taxpayer filed an appeal with the County, contending that the assessments for the 2018 and 2019 tax years were for equipment that had already been reported as taxable on its original returns. The Taxpayer also asserted that the activities the County considered to be processing were actually mining and as such, any equipment that was not directly used in the mining operation was not subject to local taxation. 

The County issued a final local determination in May 2022, asserting that its July 2021 letter constituted its final determination as to these issues and that the Taxpayer should have filed an appeal with the Department within 90 days of that letter. Nevertheless, the County reiterated its previous conclusion that the equipment the Taxpayer was treating as exempt was used in quarrying, not mining, and thus remained subject to tax under the processing designation. Finally, the County determined that the 2018 and 2019 assessment of tax for additional equipment was valid because the Taxpayer had not submitted requested filings for all its furniture, fixtures and equipment.

The Taxpayer appealed to the Department, contending that the activities the County designated as processing were mining and that the County was attempting to tax the same equipment twice in the 2018 and 2019 tax years.

ANALYSIS

Response Delay

Virginia Code § 58.1-3983.1 D 3 requires that the Department issue a final written determination within 90 days of receipt of the appeal unless the taxpayer and locality are notified that more time will be needed. In this case, the appeal was timely received by the Department but was not forwarded to the Appeals division. Once discovered, the Department took immediate action to begin working the appeal but must make use of the extension allowed under the law. 

Jurisdiction

In its final determination letter of May 2022, the County reasoned that, because the Taxpayer did not appeal the County’s July 2021 determination to the Department, it was procedurally barred from appealing the assessments. 

The procedural background of this case is similar to the facts of P.D. 22-113 (6/21/2022). In that case, the taxpayer requested a refund on the basis that it had erroneously paid BTPP taxes to the locality. The locality 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. In such cases, the locality should either grant the request, or perform a verification process. If the locality chooses 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 locality’s decision. Like that case, here the County proceeded to issue a final local determination in response to the Taxpayer’s 2017 through 2019 amended returns, instead of denying the refund and informing the Taxpayer of its local appeal rights.

Regardless, Virginia Code § 58.1-3983.1 B provides:  

. . . Any person assessed with any local mobile property tax or local business tax as defined in this section 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 . . .

. . . The appeal shall be filed in good faith and 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 commissioner of the revenue or other assessing official shall undertake a full review of the taxpayer’s claims and issue a written determination to the taxpayer setting forth the facts and arguments in support of his decision within 90 days after such appeal is filed.

As such, so long as a taxpayer appeals an assessment of a business tax within the period of limitations and files a proper appeal, the locality must address the appeal and issue a final local determination.

In this case, the Taxpayer clarified that it is was not appealing the denial of the amended returns addressed in the County’s April 2017 letter. Rather, it was just appealing the assessments that were issued subsequent to that letter. These were new assessments issued for the 2018 through 2021 tax years. Even if the April 2021 letter had been a proper final local determination regarding the refund requests for the 2017 through 2019 tax years, that letter still would not have prevented the Taxpayer from being able to file the current appeal for the subsequent assessments. Further, the fact that the County had already addressed the processor classification issues in the April 2021 letter would not have procedurally barred the Taxpayer from filing the current appeal.

Duplication of Assessment

The Taxpayer states that it was not disputing the denial of its 2018 and 2019 amended returns. However, it claims that the County’s new assessments as to these years cover property already included in the Taxpayer’s original returns. The County argues that the assessment was for equipment it believed to be in addition to the original assets filed and that the Taxpayer had not provided filings that included all of its furniture, fixtures, and equipment.

Virginia Code § 58.1-3109 6 grants local assessing officers the authority to require records and other information necessary to make an accurate assessment of a taxpayer's tangible personal property. In addition, pursuant to Virginia Code § 58.1-3983.1 B 3, a local assessing officer may require the submission of additional information or documentation in order to make a proper and equitable determination of an application for correction. As such, it is incumbent upon a taxpayer to prove to the satisfaction of the local taxing authority that it properly sitused and reported gross receipts on its tax returns.   

Mining and Quarrying

In its April 2022 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 P.D. 23-43 and P.D. 23-93 (08/03/2023), 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 Solite v. King George County, 220 Va. 661, 261 S.E.2d 535 (1980), in which the court referred to the extraction of rock from the earth and the crushing of stone as quarrying. The court in Solite, however, merely addressed whether the crushing of stone constituted manufacturing for purposes of the BPOL tax, and it did not determine whether that business was engaged in mining, manufacturing, or processing. See P.D. 23-43.

DETERMINATION

The ordinary usage of the word mining includes the extraction of limestone from a quarry. This definition of mining is supported by NAICS industry descriptions and Virginia’s regulatory regime applicable to mine safety. In the Department’s opinion, any machinery and tools used in mining, including any machinery and tools involved in preparation activities customarily performed at a mine site, would be subject to the M&T tax. Property not used in such mining processes would be exempt from local property taxation unless and to the extent a taxpayer may have conducted a separate business subject to its own local tangible personal property tax. 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), P.D. 23-43, and P.D. 23-93. In this case, it appears that the County has already concluded that the Taxpayer was conducting a separate manufacturing business at the site at issue, and the Taxpayer has raised no objection to that conclusion.  

A determination as to whether particular equipment is subject to the business property tax is, however, a matter of fact. See P.D. 14-22 (2/26/2014). Such examinations remain the prerogative of the local taxing authority. Therefore, I am remanding this case to the County in order to make a determination as to what property was utilized in the Taxpayer’s mining operations and what property was exempt. 

Further, the Taxpayer is instructed to provide the County with the information it previously requested as to the 2018 and 2019 tax years in order to ensure that no duplication of assessments has occurred. The Taxpayer should supply the County with this information within 30 days of the date of this letter, or by another deadline mutually agreed on by the Taxpayer and the County. The County must then revise the assessments issued for the 2018 through 2021 tax years and 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 of the final determination. 

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/4750.B