Did a motel operator prove that a city's business-property assessments included its parent's assets or exceeded fair market value?

Subject

Taxpayer underreported amount and value of its business tangible personal property

Plain-English summary

Virginia found that the motel operator had not yet proved the city's business-property assessments wrong, but remanded the case for one more documentation review. The city concluded that the motel underreported the amount and value of its business tangible personal property for 2006 through 2009. The taxpayer argued that some assets belonged to its parent and that the city's values exceeded fair market value.

For ownership, the ruling said property is listed and taxed to its legal owner. Only property owned by the motel operator in the city was subject to that taxpayer's BTPP assessment.

For valuation, local commissioners were responsible for fair-market-value assessments using the methods prescribed for the property category. The city had relied on fixed-asset schedules supplied by the taxpayer's accountant, and the taxpayer carried the burden of proving those records or values wrong.

The submitted record did not overcome the assessment's presumption of correctness. Virginia nevertheless sent the matter back to the city to consider additional ownership and valuation documents delivered within 30 days. If none were provided, the assessments would be upheld and collection could proceed.

What this means for you

• Separate each entity's assets; related companies are not taxed as one owner merely because they share operations.
• Reconcile local property returns to fixed-asset ledgers before giving schedules to an auditor.
• Support fair-market-value objections with concrete ownership, cost, category, and valuation evidence.
• A remand for more documents is not a cancellation of the assessment.

Common questions

Did Virginia rule that the city taxed the parent's assets?

No. It stated the legal-owner rule but found the existing evidence insufficient to show that the city included parent-owned property.

Were the assessments immediately final?

They remained in place, but the taxpayer had 30 days to submit additional evidence for the city to consider.

Citations and references

• Va. Code § 58.1-3983.1(B)(4) and (D)(1).
• Va. Code §§ 58.1-3015, 58.1-3103, 58.1-3503, and 58.1-3109(6).
• Va. Code § 58.1-1100 et seq.
• Virginia Constitution art. X, §§ 1, 2, and 4.
• P.D. 09-22.
• Tuckahoe Women's Club v. County of Richmond, 119 Va. 734, 101 S.E.2d 571 (1958).

Source

• Landing page: Virginia Laws, Rules & Decisions
• Ruling: P.D. 11-17

Original ruling text

February 11, 2011

Re: Appeal of Final Local Determination

Taxpayer: *

Locality: *

Business Tangible Personal Property (BTPP) Tax

Dear *:

This final state determination is issued upon the application for correction filed by * (the "Taxpayer") with the Department of Taxation. The Taxpayer appeals assessments of business tangible personal property (BTPP) taxes issued to the Taxpayer by the *** (the "City") for the 2006 through 2009 tax years.

The BTPP tax is imposed and administered by local officials. Virginia Code § 58.1-3983.1 D 1 authorizes the Department to issue determinations on taxpayer appeals of BTPP tax assessments. On appeal, a local tax assessment is deemed prima facie correct, i.e. , 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 in the Tax Policy Library section of the Department's web site, located at www.tax.virginia.gov.

FACTS

The Taxpayer owned and operated a motel in the City. In addition, the Taxpayer's parent entity (the "Parent") owned furnished apartments and rental homes in the City. Under audit, the City determined that the Taxpayer underreported both the amount and value of its business tangible personal property and issued assessments for the tax years at issue. The Taxpayer appealed assessments contending the City included property owned by the Parent and its valuation exceeded fair market value (FMV). The City, citing a fixed asset listing provided by the Taxpayer's accountant, issued a final determination upholding its assessment. The Taxpayer appeals the local final determination to the Department.

ANALYSIS

All tangible personal property, unless declared intangible under the provisions of Va. Code § 58.1-1100 et seq. , is reserved for local taxation by Article X, § 4 of the Constitution of Virginia . Article X, §§ 1 and 2 of the Constitution of Virginia provide that all property, unless specifically exempted within the provisions of the Constitution , shall be taxed at a uniform rate among classes, and that "all assessments of real estate and tangible personal property shall be at their fair market value to be ascertained as prescribed by general law."

Property Subject to Tax

The Taxpayer contends the City included property owned by the Parent in its BTPP tax assessments. The City states it included only that property listed by the Taxpayer's accountant as Taxpayer property in the BTPP assessments.

Virginia Code § 58.1-3015 provides, in pertinent part, "If . . . property belongs to a corporation or firm, it shall be listed by and taxed to the corporation or firm." A "firm" is the "title under which one or more persons conduct business jointly." See Black's Law Dictionary 666 (8th ed. 2004). Accordingly, the controlling factor in Virginia property taxation is who is the legal owner of the property identified for taxation. See Public Document (P.D.) 09-22 (2/6/2009). As such, only that property owned by the Taxpayer in the City is subject to the BTPP tax in the City.

Property Valuation

The Taxpayer avers that the value of the property determined by the City for purposes of the BTPP tax included business tangible personal property that was owned by the Parent. The City counters that it properly valued the Taxpayer based on its audit and the information provided by the Taxpayer's accountant.

Virginia Code § 58.1-3103 charges local commissioners of the revenue with the responsibility of assessing property at FMV. The FMV of a particular item of tangible personal property is generally defined as the price such property will bring when offered by one who desires, but is under no obligation, to sell it, and the buyer has no immediate necessity to purchase it. See Tuckahoe Women's Club v. County of Richmond , 119 Va. 734, 101 S.E.2d 571 (1958).

In attempting to achieve property valuations that reasonably approximate FMV, the General Assembly has statutorily prescribed different methodologies for use in the valuation of different classifications of property. Virginia Code 58.1-3503 specifies that for most items of tangible personal property, FMV is to be ascertained either by a percentage or percentages of original cost, or in the case of trucks and cars and certain other vehicles, by means of recognized pricing guides. Further, this statute stipulates:

Methods of valuing property may differ among the separate categories, so long as each method used is uniform within each category, is consistent with requirements of this section and may reasonably be expected to determine actual fair market value as, determined by the commissioner of revenue or other assessing official . . .

Under the provisions of Va. Code § 58.1-3109 6, the local commissioner of the revenue is empowered with the authority to require records and other information necessary to make an accurate assessment of a person's tangible personal property. In the Taxpayer's case, the City relied upon schedules provided by the Taxpayer's accountant. Absent more concrete evidence, such documentation would generally be utilized by a locality for the purposes of determining the correct BTPP tax. It is incumbent upon the Taxpayer to prove to the satisfaction of the local taxing authority that it properly reported the value of its property on its BTPP returns. See Va. Code § 58.1-3983.1 B 4.

DETERMINATION

Based on facts and documentation presented, the Taxpayer has not shown that the City's assessment is incorrect. However, I am remanding this case back to the City in order to consider any other documentation the Taxpayer may be able to provide with regard to the assets it owns and the value of such assets. Such documentation or evidence should be provided to the City within 30 days of the date of this determination. If the required documentation is not provided within the time allowed, the assessments will be upheld as issued and the City may proceed with collection action.

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

Sincerely,

Craig M. Burns

Tax Commissioner

AR/1-4547832971.B