If a Virginia taxpayer's own mistake caused a local tax overassessment (wrong filing, payment to the wrong locality, failure to file leading to a statutory assessment), and the locality later refunds the overpayment, must the locality also pay interest?

Subject

An erroneous assessment includes any assessment containing an error and subsequently corrected by the locality irrespective of whether the underlying error was due on the part of the taxpayer or the assessing official.

Plain-English summary

The York County Commissioner of the Revenue and Treasurer asked the Attorney General a recurring tax-administration question: when a local tax assessment turns out to be wrong, and the locality issues a refund, does it have to pay interest on the refund? Their concern centered on three scenarios where the original mistake was the taxpayer's:

1. A taxpayer filed a return classifying property as business personal property, then later filed a corrected return reclassifying it as real property, and the Commissioner accepted the correction on appeal.
2. A taxpayer paid a business license tax to the wrong locality, or applied the payment to the wrong account.
3. A taxpayer failed to file a business tax return, the Commissioner issued a "statutory assessment," and the assessment was later corrected by audit or by the taxpayer's late filing.

Under Va. Code § 58.1-3916, a Virginia locality that charges interest on delinquent taxes must pay interest at the same rate on overpayments of "erroneously assessed taxes." The question was whether assessments errored because of taxpayer mistakes count as "erroneous."

The Attorney General said yes. "Erroneous" means "containing an error" or "characterized by error," and the statute does not limit interest payments to refunds where the error was the assessor's. The General Assembly knew how to write that limitation if it wanted to. Since it didn't, the AG read the plain language broadly. The same conclusion applied to refund interest under §§ 58.1-3981 and 58.1-3990.

What this means for you

For Virginia commissioners of the revenue and treasurers

The opinion holds that a locality which pays interest on delinquent taxes must pay interest, at the same rate, on refunds of erroneously assessed taxes regardless of whether the taxpayer or the assessing official caused the error. It holds the only exceptions in § 58.1-3916 are refunds of $10 or less and refunds resulting from proration under § 58.1-3516, and it notes a prior opinion treated interest on overpayments as unrelated to fault or the taxpayer's mistake.

For Virginia taxpayers (business and individual)

The opinion holds that interest is owed on the refund of an overpayment whenever an erroneous assessment is corrected, even if the taxpayer's own mistake caused the error. It treats each of the three scenarios presented as an erroneous assessment: a property misclassification corrected on appeal, a license payment made to the wrong locality, and a statutory assessment for failure to file that is later corrected. The exceptions are refunds of $10 or less and refunds resulting from proration under § 58.1-3516.

For tax attorneys

The opinion forecloses the argument that a taxpayer-caused error defeats a claim for refund interest under § 58.1-3916; its plain-language reading turns only on whether the assessment contained an error. It holds the same analysis applies to refunds under §§ 58.1-3981 and 58.1-3990.

For small business owners filing BPOL or BPP

The opinion holds that misclassification of property, payment to the wrong locality, and statutory assessments for failure to file all qualify as erroneous assessments, so a corrected refund carries interest at the locality's delinquent-tax rate even where the business caused the original error.

Common questions

When must a Virginia locality pay interest on a refund?
When the locality (1) provides for interest on delinquent taxes, and (2) the refund is of an overpayment due to an erroneously assessed tax. The rate of interest matches the delinquent-tax interest rate. Va. Code § 58.1-3916(A).

Does it matter whose mistake caused the erroneous assessment?
No. The AG read § 58.1-3916 broadly: any assessment "containing an error" qualifies, regardless of fault. The statute doesn't condition interest on the assessor having made the error.

Are there exceptions?
Two: (1) the refund amount is $10 or less, or (2) the refund results from proration pursuant to § 58.1-3516.

Does this rule apply to refunds under §§ 58.1-3981 and 58.1-3990 too?
Yes. The AG applied the same plain-language analysis to all three refund statutes.

What's a "statutory assessment"?
When a taxpayer fails to file a required tax return, the Commissioner of the Revenue can issue an assessment based on best available information. If the taxpayer later files a return and the actual liability is lower, the locality corrects the assessment and refunds the overpayment.

What rate of interest?
The same rate the locality charges on delinquent taxes. That rate varies by locality and by year.

If my refund is for a business license paid to the wrong locality, who pays interest?
The locality that received the payment (and is now refunding it) must pay interest. The opinion treats payment to the wrong locality as an erroneous assessment by the receiving locality.

Background and statutory framework

Section 58.1-3916 governs interest on overpayments due to erroneously assessed local taxes. Its key text:

A locality that provides for payment of interest on delinquent taxes shall provide for interest at the same rate on overpayments due to erroneously assessed taxes to be paid to the taxpayer, provided that no interest shall be required to be paid on such refund if (i) the amount of the refund is $10 or less or (ii) the refund is the result of proration pursuant to § 58.1-3516.

Chapter 39 of Title 58.1, which governs enforcement, collection, and review of local taxes, doesn't define "erroneous." The AG fell back on standard statutory construction: undefined terms get their ordinary meaning. Webster's Third New International Dictionary defines "erroneous" as "containing an error" or "characterized by error." So any local-tax assessment that contains an error counts, no matter who made the error.

The AG also leaned on the rule that "Rules of statutory construction prohibit adding language to or deleting language from a statute," citing Office of the Attorney General v. State Corp. Comm'n, 288 Va. 183, 192 (2014), and Appalachian Power Co. v. State Corp. Comm'n, 284 Va. 695, 706 (2012). Since § 58.1-3916 doesn't limit interest to assessor-caused errors, the AG declined to read in such a limit.

Sections 58.1-3981 (refund procedure when commissioner of revenue is satisfied of an erroneous assessment) and 58.1-3990 (refund authorized by locality's governing body) operate on the same logic. Neither limits interest to refunds where the original error was on the part of the assessing official.

Citations

• Va. Code § 2.2-505 (AG advisory opinions)
• Va. Code § 58.1-3516 (proration)
• Va. Code § 58.1-3916 (interest on local-tax overpayments)
• Va. Code § 58.1-3981 (refund on application; commissioner's satisfaction)
• Va. Code § 58.1-3990 (refunds authorized by local governing body)
• Sansom v. Bd. of Supervisors, 257 Va. 589 (1999)
• Hubbard v. Henrico Ltd. Partnership, 255 Va. 335 (1998)
• City of Virginia Beach v. Flippen, 251 Va. 358 (1996)
• Marsh v. City of Richmond, 234 Va. 4 (1987)
• Dep't of Taxation v. Orange-Madison Coop. Farm Serv., 220 Va. 655 (1980)
• Office of the Attorney General v. State Corp. Comm'n, 288 Va. 183 (2014)
• Appalachian Power Co. v. State Corp. Comm'n, 284 Va. 695 (2012)
• 2000 Op. Va. Att'y Gen. 218

Source

• Landing page: https://www.oag.state.va.us/annual-reports-opinions/official-opinions
• Original PDF: https://www.oag.state.va.us/files/Opinions/2021/20-052-Thomas-Kelly-issued.pdf

Original opinion text

Best-effort transcription from a scanned PDF. Minor errors may remain, the linked PDF is authoritative.

COMMONWEALTH of VIRGINIA

Office of the Attorney General

Mark R. Herring
Attorney General
202 North Ninth Street
Richmond, Virginia 23219
804-786-2071
Fax 804-786-1991
Virginia Relay Services
800-828-1120
7-1-1

July 16, 2021

The Honorable Ann H. Thomas
York County Commissioner of the Revenue
Post Office Box 90
Yorktown, Virginia 23690-0090

The Honorable Candice D. Kelley
York County Treasurer
Post Office Box 251
Yorktown, Virginia 23690-0251

Dear Commissioner Thomas and Treasurer Kelley:

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 the following circumstances are considered "erroneous assessments" for purposes of § 58.1-3916, such that the locality is obligated to pay interest on any overpayment refunded to the taxpayer upon correction of the assessment:

1. The filing of a corrected return by a taxpayer to re-classify property originally reported by the taxpayer as business personal property to real property, when such corrected return is ultimately accepted by the Commissioner of Revenue on appeal.

2. The filing of a business license return and payment of tax to the wrong locality, or a tax payment directed to the incorrect account.

3. A "statutory assessment" issued as a result of the taxpayer's failure to file a business tax return, which assessment is subsequently corrected upon either audit by the Commissioner of Revenue or the taxpayer's late filing of a return.

You note that in each of these scenarios, an earlier mistake by the taxpayer resulted in the assessment that was subsequently corrected by the Commissioner of Revenue. You also note that §§ 58.1-3981 and 58.1-3990 do not clarify whether interest must be paid on all refunds.

Applicable Law and Discussion

Section 58.1-3916 of the Code of Virginia provides in relevant part as follows:

A locality that provides for payment of interest on delinquent taxes shall provide for interest at the same rate on overpayments due to erroneously assessed taxes to be paid to the taxpayer, provided that no interest shall be required to be paid on such refund if (i) the amount of the refund is $10 or less or (ii) the refund is the result of proration pursuant to § 58.1-3516.

Chapter 39 of Title 58.1 relating to the enforcement, collection, and review of local taxes, does not define the term "erroneous" in the context of an erroneous assessment. When a statute does not expressly define a term, the rules of statutory construction require that the legislature's intent is to be inferred "from the plain meaning of the language used." An undefined term is "given its ordinary meaning, given the context in which it is used." The ordinary meaning of the term "erroneous" is "containing an error" or "characterized by error." Thus, any assessment of taxes that contains an error or mistake is an "erroneous assessment" for purposes of § 58.1-3916.

Section 58.1-3916(A) provides for the payment of interest on "overpayments due to erroneously assessed taxes." It does not contain any language limiting the payment of interest to overpayments due to erroneously assessed taxes resulting from an error on the part of the assessing official. The "[r]ules of statutory construction prohibit adding language to or deleting language from a statute." Because § 58.1-3916 contains no language limiting the payment of interest to overpayments to those instances where the error was on the part of the assessing official, interest must be paid on any refund resulting from the correction of an erroneous assessment. This is true regardless of whether the original assessment was correctly calculated based upon the information mistakenly provided by the taxpayer, or the best information available to the assessing official at the time of assessment. A prior opinion of this office concluded that the payment of interest on an overpayment was unrelated to equitable factors such as fault or the taxpayer's mistake.

The same analysis applies in the context of refunds issued pursuant to §§ 58.1-3981 and 58.1-3990. Section 58.1-3981 directs the issuance of a refund when the commissioner of revenue is satisfied that an applicant challenging an erroneous assessment of local tax has been erroneously assessed and such assessment has been paid. Similarly, § 58.1-3990 provides that if the governing body of a locality has authorized refunds for the erroneous payment of local taxes, "the tax-collecting officer or his successor in office shall refund to the applicant the amount erroneously paid, together with any penalties and interest paid thereon" when the commissioner of revenue is satisfied that an applicant has been erroneously assessed with local taxes. Neither of these provisions contain language that restricts the payment of interest on overpayments to those circumstances involving error on the part of the tax official. Absent language restricting the payment of interest to refunds resulting from an erroneous assessment due to the assessing official's error, a locality is obligated to pay interest on tax refunds and overpayments resulting from the correction of any erroneous assessment.

Conclusion

Accordingly, it is my opinion that an erroneous assessment includes any assessment containing an error and subsequently corrected by the locality irrespective of whether the underlying error was due on the part of the taxpayer or the assessing official.

With kindest regards, I am,

Very truly yours,

Mark R. Herring
Attorney General