Could a county reject a poultry processor's manufacturer classification for 2006-2009 solely because supporting documents arrived after an initial 45-day period?

Subject

County had to review poultry manufacturer's additional BTPP records

Plain-English summary

Virginia sent the poultry processor's 2006-2009 BTPP classification dispute back to the county again because the county had refused to consider additional documents requested after the original deadline.

An earlier determination had given the taxpayer 45 days to show that it was a vertically integrated manufacturer conducting substantial manufacturing activities. Within that period, the taxpayer supplied entity lists and a revenue schedule, but the materials did not identify the relevant entities, activities, and locations in enough detail. The county then requested more specific records, which the taxpayer provided during continuing discussions.

The county later classified the taxpayer as a manufacturer for 2010-2011, yet upheld the older assessments solely because sufficient documents had not arrived within the first 45 days. Virginia found the taxpayer had made a good-faith effort and that the county had not specified the additional records until after that period.

The county therefore had to evaluate all requested documentation for 2006-2009, adjust the assessments if the proof was sufficient, or allow more documentation needed for the same thorough review performed for 2010-2011.

What this means for you

• This ruling did not decide the ultimate processor-versus-manufacturer classification.
• Local BTPP taxpayers bear the burden of documenting entities, activities, locations, and property reporting.
• A locality should identify the records it needs and consider documents it later requests.
• Good-faith compliance with an administrative remand can matter when a deadline dispute arises.

Citations and references

• Va. Code §§ 58.1-3983.1 D 1 and 58.1-3109 6.
• P.D. 10-236 and the Guidelines for Appealing Local Business Taxes, discussed in the ruling.

Source

• Landing page: Virginia Laws, Rules & Decisions
• Ruling: P.D. 14-111

Original ruling text

July 16, 2014

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 "County") for 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 Laws, Rules and Decisions section of the Department's web site, located at www.tax.virginia.gov .

FACTS

The Taxpayer operates a poultry processing business in the County. For the tax years at issue, the County classified the Taxpayer's operations as a processor of agricultural products and assessed the Taxpayer's BTPP accordingly. The Taxpayer appealed the assessments contending it was a manufacturer. After the County upheld the assessments in its final determination, the Taxpayer appealed to the Department.

In Public Document (P.D.) 10-236 (9/30/2010), the Department remanded the case back to the County for further review and instructed the Taxpayer to provide additional evidence. In compliance with P.D. 10-236, the Taxpayer provided additional documentation to the County. The County responded that the information did not clearly identify which activities were manufacturing and where such activities were being conducted. In its response, the County requested additional documentation. The Taxpayer provided additional documents and entered into discussions with the County concerning the issues.

In November 2013, the County issued a new final determination upholding the assessments for all of the tax years at issue. In its determination, the County found that the Taxpayer had failed to provide the documentation within the time limit set forth in P.D. 10-236. The Taxpayer appeals the final local determination, contending that it was a vertically integrated manufacturer engaged in substantial manufacturing activities.

ANALYSIS

Pursuant to § 1.1 of the Guidelines for Appealing Local Business Taxes (the "Guidelines" ), issued as P.D. 04-28 (6/25/2004), the review process for local business taxes was established "to encourage resolution of local business tax issues" through an administrative appeals process. In conjunction with this purpose, the Department directed the Taxpayer in P.D. 10-236 to provide evidence to show it, was a vertically integrated manufacturer that conducted substantial manufacturing activities during the 2006 through 2009 tax years. The Taxpayer was directed to provide the evidence to the County within 45 days of the date of the Department's determination. The Department further stated the assessments would be upheld as issued if the documentation was not provided within the time allowed.

The Department did not, however, specify what documentation would be

required in order for the Taxpayer to show that it was a vertically integrated manufacturer. This was because the provisions of Va. Code § 58.1-3109 6 empower the local commissioner of the revenue with the authority to require records and other information necessary to make an accurate assessment of a person's tangible personal property. As such, it is incumbent upon a taxpayer to prove to the satisfaction of the local taxing authority that it properly reported the value of its property on its tax returns. Likewise, it is the responsibility of a local taxing authority to provide taxpayers with the opportunity to furnish sufficient documentation.

Within the 45 days allowed by P.D. 10-236, the Taxpayer provided documentation consisting of two listings of all the related entities and a schedule showing revenues from various business activities for the tax years at issue. A reorganization occurred in 2007 resulting in the two listings (one for 2006 and one for 2007 through 2009). Neither of the listings specifically identified which the entity or entities were part of the Taxpayer's vertically integrated manufacturing business. In addition, the schedule of revenues also lacked sufficient detail to show from which entity the revenues were derived.

Based on these documents, the County responded that the information did not clearly identify which activities were manufacturing and where such activities were being conducted. It requested additional documentation for the 2007 through 2009 tax years. The Taxpayer provided additional documentation, which appears to have developed into discussions with the County concerning the issues at hand. During the course of these discussions, the Taxpayer appealed BTPP tax assessments for the 2010 and 2011 tax years on the same grounds it appealed the 2006 through 2009 tax years.

In its final determination, the County determined the documentation was sufficient to conclude the Taxpayer was a manufacturer for the 2010 and 2011 tax years. However, the County upheld the assessments for the 2006 through 2009 tax years simply because the Taxpayer had failed to provide sufficient documentation within the time set forth in P.D. 10-236. This finding was made despite the fact that the Taxpayer had made an effort to comply with the time period stated in the Department's final determination and the County had not identified the documentation required in order for it to evaluate the Taxpayer's operations until after the 45 day time period had elapsed. Further, after requesting and receiving additional documentation for the 2007 through 2009 tax years, the County did not even consider it in its final determination.

DETERMINATION

Based on the facts presented, I find the Taxpayer made a good faith effort to comply with the Department's determination in P.D. 10-236. In addition, the County acted within its authority to request additional documentation for the 2007 through 2009 tax years. Accordingly, I am again remanding this case back to the County with the instruction to consider the additional documentation, provided by the Taxpayer at the County's request, for the 2006 through 2009 tax years. If the County finds this additional documentation sufficient to grant relief, it must make the appropriate adjustments to the assessments. If the additional documentation is not satisfactory, the County may grant the Taxpayer time to provide further documentation so as to allow the County to make a thorough evaluation as it was able to do for the 2010 and 2011 tax years.

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

Sincerely,

Craig M. Burns

Tax Commissioner

AR/1-5610378115.o