Was a holding company's office property exempt from county BTPP tax because its separate subsidiaries conducted manufacturing?

Subject

Holding-company office property remained taxable BTPP

Plain-English summary

Virginia upheld county BTPP taxation of a holding company's office furniture, fixtures, equipment, and computers. Although most subsidiaries conducted manufacturing and shared officers and directors with the holding company, each corporation was a separate legal entity. The holding company itself provided management and administrative services and did no manufacturing at its county office.

The company relied on American Woodmark, where a single vertically integrated manufacturing corporation's headquarters property was treated as intangible and exempt from local tangible-property tax. The Commissioner distinguished that case because this taxpayer and its subsidiaries were separate corporations. Virginia law supplied no authority to extend the manufacturing exemption to a separate entity performing no manufacturing.

The taxpayer also could not revive its 2001 and 2002 administrative appeals. The county's later decision merely upheld its earlier assessments; it was not a new assessment restarting the time limit. Those years remained outside the Tax Commissioner's administrative jurisdiction.

What this means for you

• An affiliated group is not automatically one vertically integrated manufacturer for local property-tax purposes.
• Separate incorporation and separate federal employer identification supported separate taxable-entity treatment.
• Headquarters property did not become manufacturing intangible property merely because the holding company managed manufacturing subsidiaries.
• Local-tax appeal routes and deadlines are distinct and strictly time-bound.

Common questions

Why did the manufacturing exemption fail?

The taxpayer was a separate holding company that did not manufacture; its subsidiaries' activities were not treated as its own.

Why did American Woodmark not control?

That case involved one legal entity operating a vertically integrated manufacturing business, unlike this affiliated group of separate corporations.

Could the Tax Commissioner review 2001 and 2002?

No. The later county determination was not a new assessment, so it did not reopen the expired administrative appeal period.

Was the county's final determination upheld?

Yes.

Citations and references

• Va. Code §§ 58.1-1100, 58.1-1101(A)(2), 58.1-3980, 58.1-3983.1, and 58.1-3984.
• City of Winchester v. American Woodmark Corp., 250 Va. 451, 464 S.E.2d.148 (1995), as printed in the ruling.
• American Woodmark v. City of Winchester, 34 Va. Cir. 421 (1994).

Source

• Landing page: Virginia Laws, Rules & Decisions
• Ruling: P.D. 07-191

Original ruling text

November 21, 2007

Re: Appeal of Final Local Determination­

Taxpayer: *

Locality: *

Business Tangible Personal Property 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 an assessment of Business Tangible Personal Property (BTPP) taxes issued to the Taxpayer by the *** (the "County") for tax years 2001 through 2006.

The BTPP tax is imposed and administered by local officials. Virginia Code § 58.1-3983.1 authorizes the Department to issue determinations on taxpayer appeals of BTPP tax assessments. On appeal, a BTPP tax assessments is deemed prima facie correct. That is, 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 Tax Policy Library section of the Department's web site.

FACTS

The Taxpayer is a holding company for numerous other corporations that provide core publisher services to scientific, technical and medical publishers (journals, magazines, books/directories) and specialty packaging businesses. The Taxpayer's office is in the County.

The Taxpayer maintains 100% control of each of its subsidiary corporations. Approximately 87% of the subsidiaries' business is manufacturing and most of the subsidiaries have separate federal employer identification numbers (FEINs) for federal income tax purposes. The Taxpayer and most of its subsidiaries share common officers and directors. The Taxpayer provides administrative and management services to its manufacturing subsidiaries from its office in the County. No manufacturing is conducted at the Taxpayer's office.

The Taxpayer believes that as part of a vertically integrated manufacturing company, the tangible personal property at its office in the County should be regarded as intangible personal property, and not subject to local property taxation pursuant to Va. Code § 58.1-1101.

In December 2001, the Taxpayer timely appealed the BTPP assessments under the provisions of Va. Code § 58.1-3980 for tax years 2001 through 2004, and under the provisions of Va. Code § 58.1-3983.1 for tax years 2003 and 2004. The County issued a final local determination on July 28, 2006, in which it upheld the original assessments. On August 29, 2006, the Taxpayer filed another appeal with the County for tax years 2001 and 2002 under the provisions of Va. Code § 58.1-3983.1.

The County reviewed the Taxpayer's requests for correction and determined that its initial decision denying the Taxpayer's appeal to be considered as a vertically integrated manufacturing company for purposes of the BTPP tax was correct, and reaffirmed its initial assessment. The County also determined that it did not have jurisdiction to consider the Taxpayer's appeal for tax years 2001 and 2002 under the provisions of Va. Code § 58.1-3983.1.

ANALYSIS

Jurisdiction

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. [Emphasis added.]

It was under this provision that the Taxpayer filed its original appeal to the County for tax years 2001 and 2002.

Under this procedure, if the taxpayer disagrees in whole or in part with the local assessing officer's determination, the taxpayer may then take its grievance to the circuit court under the provisions of Va. Code § 58.1-3984.

Virginia Code § 58.1-3983.1 B 1 provides that any person assessed with a:

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. [Emphasis added.]

Under this provision, if the Taxpayer's appeal is denied in part or whole by the local assessing official, the taxpayer may, within 90 days, appeal the assessment to the Tax Commissioner.

When the local commissioner of the revenue received the Taxpayer's initial amended return, it responded with requests for additional information. The final local determination affirmed the original assessments. The Taxpayer contends that this determination was in fact a new assessment and was appealable to the Tax Commissioner under Va. Code § 58.1-3983.1 D 1. I disagree.

The administrative appeals process involving the Tax Commissioner is separate and distinct from the general appeals process afforded to taxpayers with local tax grievances under Va. Code § 58.1-3980. The procedures for the process are clearly defined in the statute; the process is time-bound and those boundaries must be followed.

In the present case, the County merely upheld its original ruling. No new assessment was issued to the Taxpayer that would allow for an appeal under the provisions of Va. Code § 58.1-3983.1. Accordingly, the appeals for tax years 2001 and 2002 remain out of statute for consideration by both the County and the Department.

Vertically Integrated Manufacturing Company

The Taxpayer's contention is that as a part of a vertically integrated company, pursuant to Va. Code § 58.1-1101 A 2, its tangible personal property at the Office should be exempt from BTPP taxation. In its argument, the Taxpayer stresses that in substance, its provision of managerial and administrative services to its subsidiaries was essentially the same as that of the taxpayer in City of Winchester v. American Woodmark Corporation , 250 Va. 451, 464 S.E.2d.148 (1995). In American Woodmark , the Virginia Supreme Court found that the property situated in the headquarters office of a manufacturer that is a vertically integrated company with no subsidiaries or affiliates, is classified as intangible property under the provisions of Va. Code § 58.1-1101, and as such is exempt from local tangible personal property taxes.

Using this analysis, the Taxpayer contends that it is a manufacturing business within the plain meaning of Va. Code §§ 58.1-1100 and 58.1-1101, and that the furniture, fixtures, office equipment, and computer equipment in its corporate headquarters are used in its manufacturing business even though no products are specifically manufactured in the locality.

I cannot agree with the Taxpayer's position. Unlike the Taxpayer's situation, the taxpayer in American Woodmark was in fact, a single legal entity. This point was emphasized in the preceding Circuit Court case, American Woodmark v. City of Winchester 34 Va. Cir. 421 (1994), which the Virginia Supreme Court affirmed. In the instant case, the Taxpayer holds a certificate of incorporation from the State Corporation Commission and has its own FEIN for federal income tax purposes. Consequently, the Taxpayer must be considered to be a separate taxable entity from the other members of its corporate family for BTPP tax purposes.

I find no authority in the Code of Virginia that would extend the exemption provided for manufacturers in Va. Code § 58.1-1101 A 2 to separate legal entities that perform no manufacturing activities. Pursuant to Va. Code § 58.1-1100, this exemption applies only to the "intangible personal property, including capital of a trade or business of any person, firm or corporation." While part of an affiliated group, the Taxpayer, as a separate legal entity, is not considered to be a part of a vertically integrated corporation for BTPP tax purposes.

DETERMINATION

It is my determination that the County was correct in asserting that the Taxpayer had no standing to appeal the 2001 and 2002 assessments to the Tax Commissioner under the provisions of Va. Code § 58.1-3983.1. In addition, the Taxpayer was not a part of a single vertically integrated manufacturer. As such, its property could not be declared as intangible under the provisions of Va. Code § 58.1-1101 A 2 and therefore exempt from local taxation. Accordingly, the final determination of the County is correct.

If you have any questions regarding this determination, you may call * in the Office of Policy and Administration, Appeals and Rulings, at ***.

Sincerely,

Janie E. Bowen

Tax Commissioner

AR/1 -1136859637H