Could a Virginia city collect consumer utility tax assessments after the five-year local-tax collection period expired during the appeal?

Subject

City's consumer utility tax assessments became uncollectible after five years

Plain-English summary

Virginia ordered the city to abate all consumer utility tax assessments for 1999 through 2002 because collection was time-barred. The taxpayer was a parent holding company whose utility subsidiary had not collected city consumer utility tax from the parent or related companies.

The city issued assessments in December 2004, and the taxpayer appealed. Virginia's general local-tax collection statute allowed enforcement for five years after December 31 of the assessment year. Although the local appeal process could suspend collection activity, the consumer utility tax appeal statute did not contain a provision extending the five-year enforcement period.

For the latest year, 2002, the city could enforce collection only through December 31, 2007. Its final local determination came in April 2008, after that deadline; earlier years had expired sooner. The city could have resumed collection if delay or failure to provide information jeopardized the assessments, but it did not use that option.

What this means for you

• Issuing a local tax assessment and placing it in an appeal process did not automatically extend this collection deadline.
• Statutory extensions written for BPOL tax did not apply by implication to consumer utility tax.
• A locality facing delay had statutory options to protect collection but needed to act before the period expired.
• Because the case was resolved on limitations, it provides no answer on the underlying utility-consumption dispute.

Common questions

What was the collection deadline for the 2002 assessment?

December 31, 2007, five years after the end of the assessed year.

Did the appeal suspend and extend the limitations period?

The appeal provisions suspended collection in ordinary circumstances but did not add an extension to the five-year consumer utility tax collection period.

Did Virginia decide whether the parent was a taxable utility consumer?

No. The statute-of-limitations ruling made the other issues unnecessary to decide.

Citations and references

• Va. Code §§ 58.1-3983.1, 58.1-3940(A), and 58.1-3703.1(A)(4)(c).
• City of Richmond v. Confrere Club of Richmond, Virginia, Inc., 239 Va. 77, 387 S.E.2d 471 (1990).
• Commonwealth ex rel. Moore v. P. Lorillard Co., Inc., 129 Va. 74, 105 S.E. 683 (1921).

Source

• Landing page: Virginia Laws, Rules & Decisions
• Ruling: P.D. 10-25

Original ruling text

March 31, 2010

Re: Appeal of Final Local Determination

Locality: *

Taxpayer: *

Consumer Utility 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 assessments of consumer utility taxes made issued to the Taxpayer by the *** (the "City"), for the 1999 through 2002 tax years. I apologize for the delay in responding to your letter.

During the tax years in question, the consumer utility tax was imposed by the locality. Virginia Code § 58.1-3983.1 authorizes the Department to issue determinations on taxpayer appeals of certain local business tax assessments, including consumer utility tax assessments exceeding $2,500. On appeal, a consumer utility tax assessment 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 cited are available on-line in the Tax Policy Library section of the Department's web site, located at www.tax.virginia.gov.

FACTS

The Taxpayer is a parent holding company for numerous subsidiaries, including * (the "Utility"). The Taxpayer and a large number of its subsidiaries, including the Utility, are headquartered in the City. The Utility is responsible for collecting consumer utility tax from businesses and individuals that use its utility services. For the tax years at issue, the Utility did not collect consumer utility tax from the Taxpayer or any of its subsidiaries with facilities located in the City.

In December 2004, the City issued assessments against the Taxpayer for unpaid consumer utility tax for the 1999 through 2002 tax years. The Taxpayer timely filed an appeal with the City, asserting the consumer utility tax only applied to purchasers of electricity. The Taxpayer argued that it did not purchase electricity from its subsidiary, the Utility. In its final determination, issued in April 2008, the City concluded that the Taxpayer was a consumer of utility services and, therefore, subject to the tax.

The Taxpayer appeals the City's final local determination to the Tax Commissioner. The Taxpayer contends: (1) the statute of limitations for collecting the assessed taxes has expired; (2) the consumer utility tax can only be imposed on actual purchasers of utility services, and (3) the City has assessed tax to the Taxpayer for utilities that were actually consumed by the Utility, not the Taxpayer.

ANALYSIS

The Taxpayer maintains that the City is prohibited from enforcing collection of the consumer utility tax assessments issued to the Taxpayer because the five year statute of limitations for the collection of local taxes has passed for all the tax years at issue. The Taxpayer, therefore, believes the City must discharge the assessments as uncollectible.

Pursuant to Va. Code § 58.1-3940 A, unless otherwise specifically provided, the collection of taxes by localities is only "enforceable for five years following December 31 of the year for which such taxes were assessed." This statute goes on to provide exceptions for real property taxes, judgments resulting from a court case, and taxpayers in receivership. None of these exceptions apply to the assessments at issue.

For purposes of the Business, Professional and Occupational License tax, Va. Code § 58.1-3703.1 A 4 c also provides a specific exception. Under this statute, the period for collecting any tax does not expire for two years after the final determination of an appeal for which collection has been stayed as a result of the appeals process.

While including provisions similar to Va. Code § 58.1-3703.1 regarding the suspension of collection activities during both the local and state appeals process, Va. Code § 58.1-3983.1 does not contain a specific provision extending the five-year statute of limitations for enforcing collection actions under Va. Code § 58.1-3940.

Further, the provisions under Va. Code § 58.1-3983.1 suspending collection activity include exceptions for assessments jeopardized by delay or a taxpayer's failure to respond to information requests. With the clock running under Va. Code § 58.1­-3940, any delay, whether by the taxpayer, locality, or the Tax Commissioner could be viewed as jeopardizing the assessment, prompting the locality to lift the suspension of collection activity and proceed with enforcement.

The Virginia Supreme Court has been reluctant to supply words to a statute, especially words that result in payment of a tax. In City of Richmond v. Confrere Club of Richmond, Virginia, Inc. , 239 Va. 77, 387 S.E.2d 471 (1990), the Virginia Supreme Court concluded that "when a statute is clear and unambiguous, its plain meaning must be accepted without resort to extrinsic evidence or to the rules of construction." Additionally, tax statutes are generally strictly construed most strongly in favor of the taxpayer, and are not be extended by implication beyond the plain meaning of the language used. See Commonwealth Ex Rel. Moore v. P. Lorillard Co., Inc. , 129 Va. 74, 105 S.E. 683 (1921).

The City argues that it should not be bound by the limitations of Va. Code § 58.1­3940 because of the Taxpayer's refusal to provide the information necessary to complete its final determination. As noted earlier, such circumstances are provided for under Va. Code § 58.1-3983.1. The City could have chosen to pursue collection actions when it determined that the Taxpayer was not responding to requests in relevant information resulting in delays in issuing a final local determination that jeopardized the collection of the assessments. As such, the City failed to take advantage of its avenues of collection afforded by the statute.

DETERMINATION

Pursuant to Va. Code § 58.1-3940, the City had five years following December 31 of the year for which the consumer utility taxes were assessed to enforce collection against the Taxpayer. For the latest tax year at issue, 2002, the City could enforce collection action through December 31, 2007. The City issued its final determination in April 2008, after the expiration of the collections limitation for the 2002 tax year. The limitations period for collecting the assessments for the preceding tax years expired even earlier. As such, the City is barred from collecting the consumer utility tax assessments for the 1999 through 2002 tax years. The City is, therefore, instructed to abate the consumer utility tax assessments issued to the Taxpayer for the tax years at issue.

Because collection of the assessments is barred by the statute of limitations, there is no need to address the other issues raised in the Taxpayer's appeal. If you have any questions regarding this determination, you may call * in the Office of Tax Policy, Appeals and Rulings, at ***.

Sincerely,

Janie E. Bowen

Tax Commissioner

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