When the Virginia Port Authority takes title to terminal assets under an installment-sale contract, do local property taxes still apply?

Plain-English summary

Senator Wagner asked a layered question about a substantial port-finance transaction. The Virginia Port Authority and Virginia International Gateway, Inc. had executed a set of agreements covering the lease of the Virginia International Gateway port terminal, future development, and the transfer of operating assets from VIG to the Authority via an installment-sale contract. The Authority was taking legal title to the assets immediately, with VIG keeping a security interest until payment. Were those assets "owned" by the Authority for tax purposes, and if so, did the Authority's tax-exempt status apply to them?

Attorney General Mark R. Herring answered yes to both questions.

(1) On ownership. Virginia AG practice has long held that "taxation is based on ownership, not on possession alone" (1982-1983 Op. Va. Att'y Gen. 573, 574). A taxpayer doesn't have to hold formal title to have ownership for tax purposes; equitable or beneficial ownership and risk of loss matter too. Here the Authority held legal title, possession, and control, and bore the risk of loss. The Authority is the owner for taxation purposes, even though VIG retained a security interest to secure payment.

(2) On exemption. Article X, § 6(a)(1) of the Virginia Constitution exempts "[p]roperty owned directly or indirectly by the Commonwealth or any political subdivision thereof" from state and local taxation. Section 58.1-3606(A)(1) restates this for local taxes. The Authority is a political subdivision of the Commonwealth exercising essential governmental functions (§ 62.1-128). Section 62.1-145 explicitly says the Authority "shall not be required to pay any taxes or assessments upon the project or any property acquired or used by the Authority under the provisions of this chapter or upon the income therefrom." That language is direct and dispositive: the assets are exempt from local business tangible personal property taxes and local real estate taxes.

The AG flagged a related point in a footnote: § 58.1-3403 authorizes localities to impose a service charge on real property owned by the Authority within the locality, in lieu of real property taxes. The opinion did not address liability for or calculation of that service charge.

Currency note

This opinion was issued in 2017. 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 Virginia Port Authority statutes (Title 62.1, Chapter 10) and tax exemption rules in Title 58.1 are amended periodically. Service-charge mechanics in § 58.1-3403 are worth re-checking. The specific Virginia International Gateway arrangement has evolved since 2017 as well.

Background and statutory framework

The Virginia Port Authority is a political subdivision of the Commonwealth that operates Virginia's port system. Section 62.1-128 declares the Authority's exercise of power "constitutes the performance of essential governmental functions." Section 62.1-145 provides a tax exemption for Authority property and income, tracking the constitutional exemption in Article X, § 6(a)(1) for property "owned directly or indirectly by the Commonwealth or any political subdivision thereof."

For ownership analysis, Virginia AG opinions and case law focus on substance over form. Prior opinions (1982-1983 Op. Va. Att'y Gen. 573 and 509; 1983-1984 Op. Va. Att'y Gen. 396; 1984-1985 Op. Va. Att'y Gen. 362) hold that "[t]axation is based on ownership, not on possession alone" and that a party need not hold formal title to have an ownership interest sufficient to confer taxable status. Holding equitable or beneficial interest, plus bearing the risk of loss, are relevant factors.

Under the Virginia International Gateway transactions, the Authority took legal title immediately, held possession and control through its operating agent (Virginia International Terminals, LLC), and assumed responsibility for insuring the assets. VIG retained a security interest until payment was completed. That risk-of-loss and title structure satisfies the Virginia ownership test for tax purposes.

Section 58.1-3606(A)(1) of the Code classifies real and personal property owned by political subdivisions as exempt from taxation, mirroring the constitutional exemption. Section 62.1-145 reinforces the exemption specifically for the Authority. The exemption is broad: it covers any property acquired or used by the Authority under its enabling chapter, plus income from such property.

The opinion flagged § 58.1-3403 as a separate matter. That statute allows localities to impose a service charge on real property owned by the Authority within the locality, even though the property itself is tax-exempt. Service-charge issues, including who pays and how it is calculated, were beyond the scope of the opinion.

Common questions

Q: My locality has a Virginia Port Authority terminal. Can we tax its operating equipment?
A: The AG concluded no. The Authority's property is exempt from local business tangible personal property taxes and local real estate taxes under Va. Const. art. X, § 6(a)(1), § 58.1-3606(A)(1), and § 62.1-145.

Q: What about assets the Authority is buying on installments? Are those still "owned" by the seller?
A: The AG concluded the Authority is the owner once it takes legal title, possession, and control and bears the risk of loss. Taxation follows substantive ownership, not formal title or unpaid balance.

Q: Does the Authority pay anything to the locality on real property it owns?
A: Section 58.1-3403 authorizes localities to impose a service charge in lieu of real property tax on Authority-owned real property. The opinion did not analyze that service charge.

Q: Does the exemption cover income from the Authority's assets?
A: Yes. Section 62.1-145 explicitly exempts "any property acquired or used by the Authority ... or upon the income therefrom."

Q: Who pays the security interest if the Authority defaults on the installment contract?
A: The opinion does not address default scenarios or what happens to tax status if title reverts to the seller. Those are deal-specific contractual and tax questions.

Q: What about other Virginia authorities? Do they all enjoy this exemption?
A: Each authority has its own enabling statute. The exemption analysis depends on the constitutional provision (which covers all political subdivisions) plus the specific enabling-statute language. Many authorities have similar exemptions; some have unique provisions.

Citations and references

Virginia statutes:

• Va. Code Ann. § 58.1-3403 (service charges on tax-exempt real property)
• Va. Code Ann. § 58.1-3606 (classes of exempt property)
• Va. Code Ann. § 62.1-128 (Virginia Port Authority essential governmental functions)
• Va. Code Ann. § 62.1-145 (VPA tax exemption)
• Va. Code Ann. § 2.2-505 (AG advisory opinion authority)

Virginia Constitution:

• Va. Const. art. X, § 6 (property exempt from taxation)

Prior AG opinions:

• 1982-1983 Op. Va. Att'y Gen. 509
• 1982-1983 Op. Va. Att'y Gen. 573
• 1983-1984 Op. Va. Att'y Gen. 396
• 1984-1985 Op. Va. Att'y Gen. 362

Source

• Landing page: https://www.oag.state.va.us/annual-reports-opinions/official-opinions
• Original PDF: https://www.oag.state.va.us/files/Opinions/2017/16-067-Wagner---VPA-lease-and-local-property-taxes-v.2.pdf

Original opinion text

COMMONWEALTH of VIRGINIA
Office of the Attorney General
Mark R. Herring
Attorney General

March 20, 2017

The Honorable Frank W. Wagner
Senate of Virginia
Post Office Box 68008
Virginia Beach, Virginia 23471

Dear Senator Wagner:

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

Issues Presented

You ask whether assets transferred to the Virginia Port Authority (the "Authority") under an installment sale contract and related lease agreement between the Authority and Virginia International Gateway, Inc. are considered owned by the Authority for tax purposes. You also ask whether such assets are exempt from local business tangible personal property taxes and local real estate taxes, should the Authority have ownership of them.

Background

You state that the Authority recently executed an Amended and Restated Deed of Facilities Lease Agreement, an Installment Sale Contract, and a Construction Authority Agreement with Virginia International Gateway, Inc. to address the lease of the Virginia International Gateway port terminal, maintenance of the port facilities, future development of the Port, and the transfer of certain assets from Virginia International Gateway, Inc. to the Authority. You relate that the Authority will be responsible for operating the terminal, as well as future build out and construction, under these Agreements. You also state that several assets will be immediately conveyed to the Authority for use in operating the terminal. While Virginia International Gateway will hold a security interest in these assets to secure their payment, the Authority will hold legal title and is responsible for insuring them. The Authority's operating agent, Virginia International Terminals, LLC, is responsible for maintenance and repair of the assets.

Applicable Law and Discussion

Prior opinions of this Office have concluded that "[t]axation is based on ownership, not on possession alone."[1] A taxpayer is not required to hold title "to possess an ownership interest sufficient to confer taxable status."[2] Holding an equitable or beneficial interest in property, as well as bearing the risk of loss, are relevant factors to determine ownership for purposes of taxation.[3] Under the facts you present, the Authority has ownership of the transferred assets for taxation purposes. The Authority not only holds legal title to the transferred assets per the Installment Sale Contract, but it also has possession and control of the assets and bears the risk of loss. Therefore, precedent and applicable law require a conclusion that the Authority is the owner of the transferred assets for purposes of the local business tangible personal property tax and the local real estate tax.

Having determined that the Authority is the owner of the transferred assets, you next inquire whether such assets are exempt from local business tangible personal property taxes and local real estate taxes.

The Constitution of Virginia exempts "[p]roperty owned directly or indirectly by the Commonwealth or any political subdivision thereof" from state and local taxation.[4] The Code of Virginia classifies real and personal property owned by political subdivisions of the Commonwealth as exempt from taxation.[5] The Authority is a political subdivision of the Commonwealth whose exercise of power constitutes the performance of essential governmental functions.[6] Accordingly, "the Authority shall not be required to pay any taxes or assessments upon the project or any property acquired or used by the Authority under the provisions of this chapter or upon the income therefrom."[7] Applicable law therefore requires a conclusion that real and personal property owned by the Authority is exempt from local real property taxes and local business tangible personal property taxes.[8]

Conclusion

Accordingly, it is my opinion that the assets transferred to the Virginia Port Authority under the sales contract are owned by the Authority and are exempt from local business tangible personal property taxes and local real estate taxes.

With kindest regards, I am

Very truly yours,

Mark R. Herring
Attorney General

[1] 1982-1983 Op. Va. Att'y Gen. 573, 574; see also 1982-1983 Op. Va. Att'y Gen. 509, 510.

[2] 1982-1983 Op. Va. Att'y Gen. 573, 574; see also 1983-1984 Op. Va. Att'y Gen. 396, 396.

[3] Id.; 1984-1985 Op. Va. Att'y Gen. 362, 362.

[4] VA. CONST. art. X, § 6(a)(1).

[5] VA. CODE ANN. § 58.1-3606(A)(1) (Supp. 2016).

[6] Section 62.1-128 (2014).

[7] Section 62.1-145 (2014) (emphasis added).

[8] In lieu of real property taxes, § 58.1-3403 authorizes localities to impose a service charge on real property owned by the Authority within a locality. This opinion does not address liability for, or calculation of, that service charge.