Can a Virginia city or county refund years of over-paid real estate taxes administratively, going back more than three years?

Plain-English summary

A Suffolk commercial taxpayer alerted the City Assessor that two of his parcels had been assessed incorrectly: one building's value had been counted on both parcels (double taxation), and another building's value had stayed on the assessment for nine years after the structure was destroyed in a 2003 hurricane. The City Assessor, acting alone, retroactively corrected nine years of assessments and authorized a nine-year tax refund. The City Attorney and City Manager learned about the refund after the fact.

The press picked up the story (a Suffolk News-Herald series covered the "tax refund flap"). Delegate Chris Jones asked the AG: can a city actually do this?

The AG: no. The City Assessor was bound by the three-year limit in state law and in Suffolk's own ordinance. Anything beyond three years was unauthorized.

The framework for tax refunds. The Virginia Supreme Court has long held that "there is no common law remedy by which to obtain a refund of taxes." The procedure for correcting erroneous assessments is "entirely statutory." Article 5, Chapter 39 of Title 58.1 establishes three independent procedures:

1. Administrative correction by application to the commissioner or assessor under §§ 58.1-3980 and 58.1-3981. Three-year limit.
2. Administrative correction under a local ordinance adopted pursuant to § 58.1-3990. Three-year limit (statutory).
3. Judicial correction under § 58.1-3984 (taxpayer files suit). Three-year limit per the underlying statute, with the exception for unconstitutional taxes.

Suffolk's situation. Suffolk had adopted an ordinance under § 58.1-3990 (Chapter 82, Article II of its Code of Ordinances). The ordinance let the City Assessor refund administratively without consulting the City Attorney or City Council. The ordinance, like the state statute, capped refunds at three years.

The Assessor's nine-year refund had no statutory basis. There was no lawsuit (so no judicial-correction path). The Assessor does not have authority to settle lawsuits; the City Attorney does. The City Attorney was not aware until after the refund happened. No exception applied.

The Dillon Rule kicks in. Virginia counties and cities have only those powers expressly granted or necessarily implied. "If there is any reasonable doubt whether legislative power exists, that doubt must be resolved against the local governing body." The three-year limit is a clear restriction; the Assessor cannot read it out of the statute.

The "we could have lost a lawsuit" argument fails. Suffolk officials had argued after the fact that the taxpayer had a right to sue, a court could have ordered the full nine-year refund, and so the city had authority to reach an out-of-court settlement for the same amount. The AG rejected this for several reasons: no lawsuit was actually filed, the Assessor has no settlement authority, there was no settlement document, and the City Attorney (who does have settlement authority) was not aware until after the fact. The three-year limit cannot be erased by hypothetical lawsuits.

The asymmetric add-on. The opinion noted, without resolving, that while the city refunded nine years of taxes to the taxpayer, it discovered the same taxpayer had received rehabilitation tax credits for which it did not qualify but billed for repayment of only three years. No Suffolk official explained the asymmetric treatment. The AG flagged the point but did not make it the holding.

Currency note

This opinion was issued in 2014. Subsequent statutory amendments, court decisions, or later AG opinions may have changed the analysis. Treat this page as historical context, not current legal advice. Verify current law before relying on any specific rule, deadline, or remedy mentioned here.

The three-year limits in §§ 58.1-3980 and 58.1-3990 have been in place for many years and were unchanged at the time of this opinion. Taxpayers and local officials should still verify the current statutory text and any local charter provisions before relying on this opinion in a specific case.

Common questions

I just discovered my home was over-assessed for the past seven years. Can I get a full refund?
At the time of this opinion, no, not through the standard administrative process. Three years is the maximum. The same was true under the judicial-correction route. The exception is when a tax is declared unconstitutional, which is rare.

What if the locality wants to refund me beyond three years anyway, as a goodwill gesture?
This opinion says no. The Dillon Rule treats unauthorized actions as void; the locality lacks the power to do what state law does not authorize. The locality can also expose itself to liability for using public funds without authority.

What is the "constitutional" exception?
If a specific tax is declared unconstitutional (by a court or the General Assembly), the three-year limit does not apply. The 2000 AG opinion cited here addresses that procedure.

Could the locality fix this by amending its charter?
Va. Code § 15.2-1103 lets some charters provide greater refund authority. But Suffolk's charter contained no such provision. A locality wanting more refund authority would need state-level charter action.

Could the General Assembly extend the three-year limit?
Yes. The legislature can amend §§ 58.1-3980 and 58.1-3990 to extend or eliminate the three-year limit, or to add new exceptions.

How do I file for a tax refund?
You apply to the commissioner of the revenue (or city assessor) under § 58.1-3980, or file suit under § 58.1-3984 if the administrative route fails. Strict three-year deadlines apply. Filing as soon as you discover the error is essential.

Does the three-year rule run from the assessment or from when I discovered the error?
From the last day of the tax year for which the taxes were assessed. Discovery of the error does not extend the deadline. This is why over-assessments that go undetected can leave taxpayers with no remedy for older years.

Does the same rule apply to other local taxes?
Yes. The § 58.1-3990 framework applies to "any local taxes or classes of taxes erroneously paid." Personal property tax, business license tax, machinery and tools tax, and others are all subject to the three-year limit.

What about a clerical error vs. a legal mistake?
Both are subject to the three-year limit. The 1985-86 AG opinion cited here confirms that the legislature deliberately closed the previously open-ended window even for clerical errors.

Background and statutory framework

• Va. Code §§ 58.1-3980 to 58.1-3984: standard administrative and judicial procedures for correcting erroneous tax assessments. Three-year statute of limitations.
• Va. Code § 58.1-3990: enabling statute for local ordinances on administrative tax refunds. Three-year limit, with sole exception for taxes declared unconstitutional.
• Va. Code § 15.2-1103: limited charter-level authority for some localities to expand tax refund authority.
• Dillon Rule: local governments have only powers expressly granted or necessarily implied.
• No common law tax refund remedy (Shell Oil, Smith, Conner): refunds exist only by statute.

The interpretive moves:

• The three-year limit is statutory and explicit.
• Dillon Rule resolves any doubt against the locality.
• "Hypothetical lawsuit" reasoning cannot expand statutory authority that was not exercised in fact.
• An administrative action taken outside the statute is void, not retroactively curable by post-hoc rationalizations.

Citations

• Va. Code § 2.2-505
• Va. Code § 15.2-1103
• Va. Code § 58.1-3980
• Va. Code § 58.1-3981
• Va. Code § 58.1-3984
• Va. Code § 58.1-3990
• Commonwealth v. Shell Oil, Co., 210 Va. 163, 169 S.E.2d 434 (1969)
• Smith v. Bd. of Supvrs., 234 Va. 250, 361 S.E.2d 351 (1987)
• Commonwealth v. Conner, 162 Va. 406, 174 S.E. 862 (1934)
• Commonwealth v. Pembroke Limestone Works, 145 Va. 476, 134 S.E. 717 (1926)
• Commonwealth v. Richmond-Petersburg Bus Lines, Inc., 204 Va. 606, 132 S.E.2d 728 (1963)
• Commonwealth v. Cross, 196 Va. 375, 83 S.E.2d 722 (1954)
• Richmond v. Confrere Club of Richmond, Inc., 239 Va. 77, 387 S.E.2d 471 (1990)
• Bd. of Supvrs. v. Countryside Invest. Co., 258 Va. 497, 522 S.E.2d 610 (1999)
• Mayfair Investment Props. v. Alexandria, 5 Va. Cir. 155 (1984)
• 2001 Op. Va. Att'y Gen. 187
• 1990 Op. Va. Att'y Gen. 251
• 1985-86 Op. Va. Att'y Gen. 256
• 2004 Op. Va. Att'y Gen. 218
• 2000 Op. Va. Att'y Gen. 194

Source

• Landing page: https://www.oag.state.va.us/annual-reports-opinions/official-opinions
• Original PDF: https://www.oag.state.va.us/files/Opinions/2014/13-081_Jones.pdf

Original opinion text

COMMONWEALTH of VIRGINIA
Office of the Attorney General
Richmond 23219

May 16, 2014

900 East Main Street
Richmond, Virginia 23219
804-786-2071
804-371-8946 TDD

The Honorable S. Chris Jones
Member, House of Delegates
Post Office Box 5059
Suffolk, Virginia 23435

Dear Delegate Jones:

I am responding to your request for an official advisory Opinion in accordance with § 2.2-505 of the Code of Virginia.

Issue Presented

You inquire whether a locality may refund erroneously assessed real estate taxes for a period beyond the three-year period provided for tax refunds effected by administrative action.

Response

It is my opinion that a locality may not by administrative action refund erroneously assessed real estate taxes after the three-year limitation period has passed.

Background

While you do not provide additional details about this tax refund, published news reports indicate that the Suffolk City Assessor was contacted by the owner of two commercial parcels who alleged that the assessments, and thus the taxes determined by the assessments, were erroneous. After investigation, the City Assessor determined that (i) the value of one building was accounted for twice by the value being listed for both parcels, and (ii) the value of a second building continued to be included in assessments despite having been destroyed in a hurricane in 2003. The City Assessor then corrected the assessments retroactively for nine years and authorized a tax refund for that entire period. These actions were taken administratively by the City Assessor. That is, no lawsuit was ever filed, there was no compromise settlement of pending litigation, and no court authorized the refund.[1]

The City Attorney and City Manager were not aware of the revised assessment and the refund until after they occurred. They later explained the matter by saying that the taxpayer had a right to sue the city for a refund of taxes paid based on the erroneous assessments, a court would have had the power, and sufficient evidence before it, to order the payments, and the city thus had the authority to reach a settlement with the taxpayer to avoid litigation.[2] However, there was no settlement document.[3]

While the city refunded taxes for nine years, it simultaneously learned that the taxpayer had received rehabilitation tax credits for which it did not qualify, but it billed the taxpayer for repayment for only three years.[4] No explanation was offered by any Suffolk official for this differential treatment.

Suffolk's Code of Ordinances, in Chapter 82, Article II, authorizes the City Treasurer to refund erroneous payments of taxes, and it authorizes the Commissioner of Revenue to certify to the Treasurer any erroneous assessment of taxes, with the Treasurer then being authorized to refund the excess, together with penalties and interest.[5] By separate law, the City Assessor is authorized to perform this function.[6] The City Code imposes a three-year limitation on the period for which such erroneous taxes may be repaid.[7]

Applicable Law and Discussion

As a previous Opinion notes,[8] the Supreme Court of Virginia has stated that "there is no common law remedy by which to obtain a refund of taxes."[9] Rather, it is well established that "the procedure for correction of erroneous assessments is entirely statutory."[10] Further, "no assessment, however erroneous, can be corrected except by virtue of some statute."[11] Accordingly, as this Office previously has concluded, "the authority to refund taxes must be derived from a statutory remedy."[12]

Another previous Opinion explains that the General Assembly, in Article 5, Chapter 39 of Title 58.1, has established "three independent procedures for correcting erroneous tax assessments: (1) administrative correction pursuant to §§ 58.1-3980 and 58.1-3981; (2) administrative correction pursuant to a local ordinance adopted pursuant to § 58.1-3990; and (3) judicial correction pursuant to § 58.1-3984."[13] Although these procedures are distinct, "[t]he several sections of the Code relating to relief against erroneous assessments of property must be considered together."[14] Because the facts of this matter entail the issuance of refunds by administrative action and not judicial decision, this Opinion will focus on the application of the administrative procedures pursuant to Suffolk's ordinance on this subject.

In the absence of a local ordinance, the procedure to be followed for a correction of assessment and a refund of taxes requires consent of the local governing body and the local government attorney. Adjustments and refunds made pursuant to these statutes are subject to an explicit three-year limitation.[15] Nonetheless, these consents need not be obtained if the locality, acting pursuant to § 58.1-3990, adopts an ordinance providing "for the refund of any local taxes or classes of taxes erroneously paid." Under such an ordinance, if the person charged with assessing properties "is satisfied that he has erroneously assessed any applicant with any local taxes, he shall certify to the tax-collecting officer the amount erroneously assessed ..., and if such taxes have been paid, the tax-collecting officer ... shall refund to the applicant the amount erroneously paid ...." Critically, this statute provides that "[n]o 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 sole exception to the three-year limit is where a particular tax is declared unconstitutional and that is not at issue here.[16] There is no authority under this statute to refund administratively more than three years of excessive taxes for erroneous double taxation of a structure, as allegedly occurred in the present situation. Time limits for tax refunds have been applied in various other contexts by the Supreme Court of Virginia.[17]

As authorized by § 58.1-3990, Suffolk has adopted an ordinance authorizing administrative refund of taxes, upon authority of the City Assessor, without requiring approval of either the City Attorney or City Council. Consistent with the authorizing statute, it contains a three-year limit on refunds, stating "No refund shall be made in any case when application was made more than three years after the last day for which such taxes were assessed."[18]

In short, Suffolk has an administrative process authorized by state law by which the City Assessor unilaterally may adjust assessments and authorize refunds. Both the enabling statute and the Suffolk ordinance enacted under its authority contain an explicit three-year limitation on refunds, with no exception made for double taxation or other errors in assessment. Under the Dillon Rule of strict construction, it is well established that political subdivisions of the Commonwealth have only those powers expressly granted or necessarily implied from express powers.[19] The Dillon Rule requires a narrow construction of all powers — such as this one — that have been conferred upon and exercised by local governments.[20] Further, any doubt as to the existence of a power must be resolved against the locality.[21] As is evident, the authorizing statute does not authorize refunds beyond the three-year limitation, and thus the Suffolk City Assessor does not have implied or inherent authority to grant such refunds.

While this assessment correction and refund process was initiated by the taxpayer, the result would be the same had it been an independent correction initiated by the assessor. Such corrections, under Virginia Code § 58.1-3981, must be made "as [t]herein provided."[22] This includes being bound by the three-year limitation period. A previous Opinion concludes, based on the legislative history of these provisions, that "a correction of an assessment which is erroneous due to a mere clerical error or calculation is subject to a three-year statute of limitations."[23] A later Opinion explicitly notes that "[t]he time limitation in § 58.1-3980(A) is applicable also to § 58.1-3981,"[24] and advised a commissioner that he was "no longer able to correct the assessment under § 58.1-3981, even if [he] believe[d] the assessment to have been erroneous," because "§ 58.1-3980(A) places a time limitation on the ability of a commissioner of the revenue, or other official performing the duties of a commissioner, to correct erroneous assessments."[25]

Finally, as to the statements that a lawsuit could have been filed, that a court could have ordered the full nine-year refund, and therefore the City Assessor had authority to reach a settlement for that full refund, the analysis is simple. No lawsuit was ever filed, the City Assessor does not have authority to settle lawsuits, there was no settlement document, and the City Attorney (who does have inherent authority to settle lawsuits) was not even aware of the correction and the refund until after it occurred. The City Assessor chose a particular remedy to correct the assessments and refund the taxes. The remedy was administrative adjustment pursuant to the City Code. Having chosen that remedy, the City Assessor and the City were bound by the three-year limitation. There was no legal basis to refund more than three years of erroneously assessed taxes under the procedure that was followed here.

The three-year restriction that exists in both state law and the Suffolk City Code cannot be rendered meaningless by hypothetical statements made after conclusion of the refund that there might have been a lawsuit, and it might have been settled under the same terms that the City Assessor authorized administratively. This is particularly true where the parties making the hypothetical statements were not even aware of the adjustment and refund until after they occurred.

Conclusion

Accordingly, I conclude that a locality, having adopted an ordinance authorizing administrative correction of assessments that imposes a three-year limitation on tax refunds pursuant to an enabling statute imposing that same limitation, lacks legal authority to administratively refund taxes in excess of three years.[26]

With kindest regards, I am

Very truly yours,

Mark R. Herring
Attorney General

[1] See, e.g., Matthew Ward, City flouts rules in tax refund, Suffolk News-Herald, July 13, 2013, available at http://www.suffolknewsherald.com/2013/07/13/city-flouts-rules-in-tax-refund/.

[2] See, e.g., R. E. Spears, III, City changes tax refund policy, Suffolk News-Herald, July 18, 2013, available at http://www.suffolknewsherald.com/2013/07/18/city-changes-tax-refund-policy/.

[3] See, e.g., Matthew Ward, Refund, not repayment, Suffolk News-Herald, Aug. 3, 2013, available at http://www.suffolknewsherald.com/2013/08/3/refund-not-repayment/.

[4] Id. See also Spears, supra note 2.

[5] City of Suffolk, Va., Code of Ordinances, § 82-31(a) & (b).

[6] The City Charter authorizes City Council to enact ordinances to have assessments made by an assessor, rather than the Commissioner of Revenue. See Charter for the City of Suffolk, Va., § 8.06. The City Code implements this transfer of authority to the City Assessor. City of Suffolk, Va., Code of Ordinances, § 82-427. Thus, any laws discussed in this Opinion granting certain powers to, and imposing certain restrictions upon, the Commissioner of Revenue grant the same powers and impose the same restrictions on the City Assessor.

[7] City of Suffolk, Va., Code of Ordinances, § 82-31(c).

[8] 2001 Op. Va. Att'y Gen. 187, 187 n.2.

[9] Commonwealth v. Shell Oil, Co., 210 Va. 163, 164, 169 S.E.2d 434, 436 (1969).

[10] Smith v. Bd. of Supvrs., 234 Va. 250, 255, 361 S.E.2d 351, 353 (1987).

[11] Commonwealth v. Conner, 162 Va. 406, 409, 174 S.E. 862, 863 (1934).

[12] 2001 Op. Va. Att'y Gen. at 187.

[13] 1990 Op. Va. Att'y Gen. 251, 253.

[14] Commonwealth v. Pembroke Limestone Works, 145 Va. 476, 486, 134 S.E. 717, 720 (1926).

[15] Va. Code Ann. §§ 58.1-3980; 58.1-3981 (2013).

[16] This process is discussed in 2000 Op. Va. Att'y Gen. 194, 196, accord 1996 Op. Va. Att'y Gen. 197, 199.

[17] See, for example, Commonwealth v. Richmond-Petersburg Bus Lines, Inc., 204 Va. 606, 609, 132 S.E.2d 728, 731 (1963), where the Court, quoting Commonwealth v. Cross, 196 Va. 375, 83 S.E.2d 722 (1954), held that the "application [for a tax refund] must be made within the time required by the authorizing statute and in accordance with such restrictions or conditions as may be contained therein."

[18] City of Suffolk, Va., Code of Ordinances, § 82-31(c).

[19] See, e.g., Richmond v. Confrere Club of Richmond, Inc., 239 Va. 77, 79, 387 S.E.2d 471, 473 (1990) ("[M]unicipal corporations possess and can exercise only those powers expressly granted by the General Assembly, those necessarily or fairly implied therefrom, and those that are essential and indispensable.") (citations omitted).

[20] 2002 Op. Va. Att'y Gen. 176, 178; 2002 Op. Va. Att'y Gen. 77, 77 (citing Bd. of Supvrs. v. Countryside Invest. Co., 258 Va. 497, 522 S.E.2d 610 (1999)).

[21] Confrere Club of Richmond, 239 Va. at 79, 387 S.E.2d at 473.

[22] Section 58.1-3981(B), (C). I further note that these exceptions to the taxpayer application requirement are to be strictly construed. See 1982-83 Op. Va. Att'y Gen. 525; 1982-83 Op. Va. Att'y Gen. 509, 510; 1984-85 Op. Va. Att'y Gen. 316.

[23] 1985-86 Op. Va. Att'y Gen. 256, 257, n.1 (quoting legislative impact statement stating that the purpose and effect of an adopted amendment was to "remove[] the indefinite time allowed for the correction of [such] assessments").

[24] 2004 Op. Va. Att'y Gen. 218, n.9.

[25] Id. at 221.

[26] In addressing related, yet distinguishable issues, previous Opinions have suggested the same conclusion: see 2004 Op. Va. Att'y Gen. at 221, n.18; 1990 Op. Va. Att'y Gen. at 253; 1986-87 Op. Va. Att'y Gen. at 318; 1983-84 Op. Va. Att'y Gen. 405A, 406; 1982-83 Op. Va. Att'y Gen. at 510; 1982-83 Op. Va. Att'y Gen. at 527; 1980-81 Op. Va. Att'y Gen. 64, 65; 1975-76 Op. Va. Att'y Gen. 393, 394; 1957-58 Op. Va. Att'y Gen. 282. See also Mayfair Investment Props. v. Alexandria, 5 Va. Cir. 155, 157 (Alexandria 1984) (upholding a provision of a tax refund ordinance and distinguishing the provision at issue from one that would have extended the three year filing deadline). I also note that, while a particular locality's Charter could provide greater authority to the locality to make additional tax refunds, see Va. Code Ann. § 15.2-1103 (2012), the Charter for the City of Suffolk contains no provision for any such enhanced authority.