Did revised depreciation schedules prove that a retailer's replaced, obsolete, or allegedly disposed assets should be removed from city BTPP assessments?

Plain-English summary

The retailer's revised fixed-asset schedules did not prove that the city's BTPP assessments were wrong. The kitchen-supply retailer said its original schedules included replaced, obsolete, or removed property. The city found that some displays were still used as office furniture, computer equipment and fabrication tools remained on the premises, and the retailer lacked records showing disposal of older assets.

The retailer also had not amended its federal returns to use the revised schedules, creating the possibility that it had continued claiming depreciation on assets it said were gone. Virginia placed the burden on the taxpayer to satisfy the local assessing authority with records needed for an accurate assessment.

Idle status did not remove property from the BTPP base. The ruling explained that BTPP tax, unlike machinery-and-tools tax, had no separate idle-equipment treatment; nonexempt tangible property remained taxable even if not currently used.

The Commissioner nevertheless remanded the case so the retailer could provide more evidence within 30 days. Without timely proof, the assessments would stand.

Common questions

Q: Are revised depreciation schedules alone enough to prove asset disposal?
A: Not here. The city could require proof of shipment, transfer, disposal, replacement, or other reliable records.

Q: Is idle business property automatically excluded from BTPP tax?
A: No. The ruling distinguished BTPP from machinery-and-tools tax on that point.

Q: Did the Commissioner finally cancel the assessments?
A: No. The taxpayer received a 30-day opportunity to submit additional evidence to the city.

Citations and references

• Virginia Constitution, Article X, §§ 1, 2, and 4.
• Va. Code §§ 58.1-3109(6) and 58.1-3983.1(B)(4), (D)(1).
• Va. Code §§ 58.1-1100 et seq. and 58.1-3507(G).
• Virginia Public Document 11-54 (April 7, 2011).

Subject

Taxpayer contends that the fixed asset schedules on its returns were overstated

Source

• Landing page: Virginia Laws, Rules & Decisions
• Ruling: P.D. 12-160

Original ruling text

October 12, 2012

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 * (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 2007 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 document 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 kitchen supply retailer that operated in the City. Pursuant to an audit, the City adjusted the Taxpayer's fixed assets listed on its BTPP tax returns for the 2007 through 2009 tax years. The Taxpayer filed an appeal with the City, contending that the fixed asset schedules on its returns were overstated, and the City included assets that had been replaced, were obsolete, or were no longer on the premises.

In its final determination, the City reviewed the Taxpayer's amended schedule of fixed assets, but affirmed its conclusion that the assets were properly included as tangible personal property subject to the BTPP tax because the property was either present at the Taxpayer's store or the Taxpayer failed to provide sufficient documentation of the property's disposal. The Taxpayer appeals the final local determination to the Tax Commissioner, asserting that the assets as adjusted by the City contained property not subject to the BTPP tax.

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 (the " Constitution "). Article X, §§ 1 and 2 of the Constitution 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."

Under audit, the City relied upon schedules provided by the Taxpayer. The Taxpayer subsequently provided revised depreciation schedules, but the City determined they were not sufficient to prove the value of the Taxpayer's business tangible property. Specifically, the City found that some of the displays were being used as furniture in the Taxpayer's offices, the computer equipment and corian fabrication tools were still on the premises, and no documentation was provided to show disposals of old assets.

Further, the Taxpayer admits that it did not amend it federal income tax returns using the revised schedules. Thus, the Taxpayer may have received the benefit of a depreciation deduction for federal income tax purposes for some of the assets it claims that it no longer had.

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. 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.

Public Document (P.D.) 11-54 (4/7/2011) provides an example of the type of information a locality may require in order to document asset disposals. In its final determination, the locality in P.D. 11-54 removed assets that were transferred to other locations with proof of shipment and furniture and fixtures that were erroneously included in the asset basis. However, because the taxpayer failed to provide verification of disposals and additional transfers of assets, the locality upheld its assessment for the previous tax years, but allowed their removal for the current tax year.

In addition, the BTPP tax does not provide designation for idle equipment like the Machinery and Tools (M&T) tax. See Va. Code § 58.1-3507 G. As such, all tangible personal property that is not exempt either by statute or the Constitution , is subject to BTPP taxation regardless of whether it is currently being used in the business or not.

DETERMINATION

Based on the 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 owned during the tax years at issue. 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. For its part, the City may wish to give some consideration to how a business can document a disposal of an asset that has been fully depreciated for a number of years if the Taxpayer can show a replacement asset is being used for the same purpose.

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

Sincerely,

Craig M. Burns

Tax Commissioner

AR/1-5087340459.B