Could a corporation obtain Department review of 2015, 2016, and 2018 county business-personal-property assessments after filing its local appeal in November 2018 and adding new software and equipment issues?

Plain-English summary

The Department could not hear the 2015 and 2016 BTPP appeals because the taxpayer filed locally too late. The timely 2018 year went back to the county because the taxpayer raised new facts and a new software-exemption issue at the state level.

The corporation manufactured equipment and provided IT systems. Its county data center backed up worldwide manufacturing and service operations, served a government agency in part, and performed no manufacturing at that facility.

Virginia allowed a local business-tax appeal within one year from the last day of the relevant tax year or one year from the assessment date, whichever was later. For the county's fiscal-year calendar, the 2015 and 2016 deadlines were June 30, 2016 and June 30, 2017. The taxpayer did not file its local appeal until November 2018, so the Department lacked jurisdiction over those years.

For 2018, the taxpayer's Department appeal added details about particular equipment, named software and “virtual machines,” and asserted a computer-application-software exemption that had not been raised with the county. Under the local business-tax appeal guidelines, the county had to address those matters first. The Commissioner remanded 2018 for a new final local determination.

What this means for you

Businesses disputing Virginia local property tax

Calendar the local appeal deadline separately for every tax year. A later appeal on similar property does not revive an expired year.

Taxpayers developing exemption arguments

Present each material fact, item of property, and exemption theory to the local assessing official. New issues raised only at the Department stage may be remanded rather than decided.

Common questions

Could the Department review 2015 and 2016? No. The local appeal was untimely.

What happened to 2018? It was remanded for the county to address the newly raised equipment, software, and exemption issues.

Did the ruling decide that the data-center property was exempt manufacturing capital? No.

Did it decide that the software was exempt? No. That theory first had to be considered by the county.

Citations and references

• Va. Code §§ 58.1-1101(A)(2) and (8), 58.1-3515, and 58.1-3983.1(B) and (D)
• Guidelines for Appealing Local Business Taxes § 1.8.6, issued as P.D. 04-28
• City of Winchester v. American Woodmark Corp., 250 Va. 451, 464 S.E.2d 746 (2000), cited by the taxpayer

Source

• Landing page: Virginia Laws, Rules & Decisions
• Ruling: P.D. 19-111

Original ruling text

September 27, 2019

Re: Appeal of Final Local Determination

Taxpayer: *

Locality: *

Business Tangible Personal Property Tax

Dear *:

This notice of jurisdiction is issued upon the administrative appeal filed by * (the “Taxpayer”) with the Department of Taxation. The Taxpayer seeks correction of assessments of business tangible personal property (BTPP) tax issued by *** (the “County”) for the 2015, 2016 and 2018 tax years.

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 online in the Laws, Rules and Decisions section of the Department’s website, located at www.tax.virginia.gov .

FACTS

The Taxpayer is a corporation that manufactures equipment and provides information technology (IT) systems in its facilities located in both in Virginia and throughout the world. Approximately 60% of its sales are attributable to manufacturing.

The Taxpayer has a data center located in the County. The data center provides a backup for all of the Taxpayer’s operations worldwide, including its manufacturing and service sectors. In addition, a portion of the data center was dedicated to providing IT operations services and a call center for a government agency. No manufacturing occurs in the County facility.

The Taxpayer filed BTPP tax returns with the County for the tax years at issue for the data center reporting taxable BTPP; however, the Taxpayer remitted no tax on the basis that it is a manufacturer and all of its property was classified as intangible property. The County then issued assessments of BTPP tax based on the amount of BTPP tax reported on the returns. The assessment due dates for the 2015, 2016 and 2018 tax years were December 11, 2015, November 28, 2016 and November 26, 2018 respectively. The Taxpayer appealed the assessments to the County, contending that the business tangible personal property at issue was exempt from BTPP taxation. The County issued a final determination stating that the Taxpayer was subject to the BTPP tax because it failed to show that its business tangible property was used in manufacturing.

The Taxpayer has filed an appeal with the Department, contending that all of the business tangible property located in the County was exempt from BTPP taxation because it was a manufacturer. In its response to the appeal, the County objected, claiming the Department lacks jurisdiction for the 2015 and 2016 tax years. In addition, the County asserts that the appeal to the Department introduced additional facts and an issue not addressed in the appeal to the County.

ANALYSIS

Statute of Limitations

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.]

The County contends that the Taxpayer is barred from pursuing an administrative appeal under Virginia Code § 58.1-3983.1 for the 2015 and 2016 tax years because the one year period for filing the local appeal had expired.

In accordance with Virginia Code § 58.1-3515, January 1 has been established “as the effective date of assessment or the tax day.” As such, one year from the date of assessment for the 2015 and 2016 tax years would be December 31, 2015 and December 31, 2016 respectively. The County operates on a fiscal year ending June 30th. The last day of the 2015 tax year was June 30, 2015 and the last year of the 2016 tax year was June 30, 2016. Therefore, the Taxpayer would have been required to file its local BTPP appeal to the Commissioner of the Revenue by June 30, 2016 for the 2015 tax year and by June 30, 2017 for the 2016 tax year. The Taxpayer filed its local tax appeal in November 2018, well after the period of limitations expired. As such, the Department does not have jurisdiction to address the Taxpayer’s appeal for the 2015 and 2016 tax years.

New Issues

Virginia Code § 58.1-3983.1 B provides that an appeal of business tax to a locality must sufficiently identify the taxpayer, the tax period covered by the challenged assessment, the amount in dispute, the remedy sought, each alleged error in the assessment, the grounds upon which the taxpayer relies, and any other facts relevant to the taxpayer's contention. The County contends that the Taxpayer did not present certain facts and issues regarding specific equipment and software in the appeal to the locality that were included in its appeal to the Department. In addition, it asserts that the appeal to the Department claimed an exemption for software that was not addressed in the local appeal.

The Taxpayer’s appeal to the County stated that all of its business tangible property was exempt from the BTPP tax in the County pursuant to Virginia Code § 58.1-1101 A 2 and City of Winchester v. American Woodmark Corporation , 250 Va. 451, 464 S.E.2d 746 (2000). The Taxpayer’s appeal to the Department addressed the layout and role of the data center located in the County, named specific software, and described certain “virtual machines.” In addition, the Taxpayer’s appeal to the Department contends that certain software is computer application software that is exempt from the BTPP tax under Virginia Code § 58.1-1101 A 8. This exemption was not claimed by the Taxpayer in its appeal to the County.

DETERMINATION

As stated above, the Taxpayer’s appeal to the County was outside of the limitations period allowed under Virginia Code § 58.1-3983.1 B 1. As such, the Department does not have jurisdiction to address the Taxpayer’s appeal for the 2015 and 2016 assessments.

As to the 2018 tax year, § 1.8.6 of the Guidelines for Appealing Local Business Taxes, issued as Public Document (P.D.) 04-28 (6/25/2004), provides that when a locality files a written request to address new issues raised by a taxpayer, the appeal must be returned to the local assessing officer to address the new issues. When an appeal is returned to the locality, the local assessing officer must make a new determination that can be appealed to the Department pursuant to Virginia Code § 58.1-3983.1 D 1.

Accordingly, I am remanding this case back to the County so that it may issue a new final local determination in order to address the aforementioned facts and issues that were not in the Taxpayer’s appeal to the County. If the Taxpayer is not satisfied with the County’s final determination for the 2018 tax year, it may file an appeal with the Department within the applicable statute of limitations.

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/2061.B

Related Documents

04-28