Our timeshare condominium's owner's association owns and furnishes every unit -- can the association claim the household goods exemption from business tangible personal property tax since individual owners actually use the furniture as their vacation home?

Plain-English summary

A timeshare condominium's owner's association was the legal owner of the furniture inside every unit in the building. Individuals separately purchased annual or biennial co-tenancy (fee simple) interests in specific units, and used those units much like a personal vacation home -- but the furniture itself belonged to the association, not to them. A small percentage of the association's units were also rented out to the general public. The City audited the association for 2016-2018 and assessed business tangible personal property (BTPP) tax on the furniture, treating it as property employed in a trade or business rather than exempt household goods. After the City's final local determination upheld the assessment, the association appealed to the Department, arguing the unit owners -- who actually lived in and used the furniture like their own -- should be considered its true owners for tax purposes.

The core legal question: who OWNS the property, not who USES it. Virginia's household goods exemption requires the property to be OWNED (not just occupied or used) by an individual or family, incident to maintaining an abode. The association conceded it legally owned the furniture -- that fact alone was largely dispositive, since the exemption's ownership requirement wasn't met regardless of how the timeshare owners actually used the units. The Tax Commissioner relied heavily on its own 2004 precedent (P.D. 04-19), which had already decided this exact issue for a different timeshare association's furniture, and methodically rejected each of the association's several attempts to distinguish or avoid that precedent:

• Federal depreciation treatment doesn't matter. Whether the association depreciated the furniture for federal income tax purposes has no bearing on its classification for local BTPP tax purposes, which is governed by an entirely separate legal framework.
• The 2014 statutory tweak didn't change the outcome. A 2014 amendment added the word "primarily" to the household exemption's "incident to maintaining an abode" language, but that change doesn't help when the fundamental problem -- the timeshare owners never owned the furniture at all -- remains unchanged.
• Who pays for damaged furniture is a private contractual matter, not a tax-ownership question. The association's governing documents might make individual owners/guests responsible for replacing furniture they destroy, but that's a private cost-allocation agreement, unrelated to who legally OWNS the property for tax purposes.
• Occasional rental use is enough -- exclusivity isn't required. The association argued the furniture was only occasionally used for public rentals, but the relevant 2004 precedent didn't require EXCLUSIVE rental use either; the real question is simply whether the property was employed in a trade or business generally, which the association's overall building operations (maintenance, unit-week sales, and occasional rental agency) satisfied.
• PPP ineligibility as a nonprofit is a separate, federal program issue. The association's frustration at being treated as a "business" for BTPP tax but not qualifying for pandemic relief as a nonprofit was understandable, but the two programs are governed by entirely different rules and don't inform each other.
• The Department can't order a locality to let you amend your governing documents. The association's final argument -- that some other localities let timeshare associations restructure their governing documents to avoid BTPP liability -- was outside the Department's authority to grant; it can review the CITY's application of the tax law, not order the City to permit a legal restructuring.

What this means for you

Timeshare condominium owner's associations that own and furnish individual units

If your association is the legal OWNER of the furniture (rather than the individual timeshare owners), that furniture is subject to BTPP tax as property employed in a trade or business -- the household goods exemption won't apply no matter how "residential" the individual timeshare owners' actual use of the units feels.

Timeshare and vacation-property associations considering how to structure ownership to reduce BTPP exposure

Legal ownership structure is what matters for this exemption, not use, depreciation treatment, damage-cost allocation agreements, or how exclusively the property is used for rentals versus owner occupancy -- if you want individual owners to be treated as the furniture's owners, your governing documents would need to actually reflect that, and even then you'd need to independently confirm the arrangement satisfies the exemption's other requirements.

Nonprofit or association-type entities weighing arguments across unrelated government programs

Don't expect a favorable or unfavorable classification under one program (like PPP eligibility, or federal depreciation treatment) to carry over into a completely separate legal framework like local property tax -- each area has its own rules that the Department (or IRS, or SBA) applies independently.

Common questions

Q: Our timeshare association owns furniture in units that individual owners use like their own vacation home -- does the household goods exemption apply?
A: No, under this ruling -- the exemption requires actual OWNERSHIP by an individual or family incident to maintaining an abode, not merely personal use. If the association is the legal owner, the furniture is taxable as property employed in a trade or business.

Q: Does it matter that our furniture is only occasionally rented to the public, not primarily used for rentals?
A: Not decisively -- the relevant precedent doesn't require EXCLUSIVE or even primary rental use; the broader question is whether the property was employed in a trade or business generally, considering all the association's activities (building operations, unit-week sales, occasional rental agency), not just the rental percentage alone.

Q: Can the Department order our locality to let us restructure our association's governing documents to avoid this tax?
A: No -- the Department's authority is limited to reviewing a locality's application of the tax law to the facts presented; it cannot direct a Commissioner of the Revenue or other local official to permit a legal document restructuring.

Citations and references

• Public Document 04-19 (6/1/2004) -- controlling precedent holding that furniture owned by a timeshare condominium's owner's association and used in timeshare units doesn't qualify for the household goods exemption, but is instead taxable BTPP as property employed in a trade or business

Subject

Tangible : Exemption - Household, Owner's Association

Source

• Landing page: Virginia Laws, Rules & Decisions
• Ruling: P.D. 21-87

Original ruling text

July 13, 2021

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 you on behalf of the * (the “Taxpayer”) with the Department of Taxation. The Taxpayer appeals the assessment of business tangible personal property (BTPP) tax issued to it by *** (the “City”) for the 2016 though 2018 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 Laws, Rules and Decisions section of the Department’s web site, located at www.tax.virginia.gov .

FACTS

The Taxpayer was the owner’s association of a timeshare condominium (the “Building”) located in the City. Individuals purchased either an annual or biennial co-tenancy interest in fee simple in one of the units in the Building. Each unit was furnished by the Taxpayer. A small percentage of units owned by the Taxpayer were rented to the public.

The City audited the Taxpayer for the 2016 through 2018 tax years and assessed BTPP tax for the furnishings located in the individual units. The Taxpayer appealed to the City, raising a number of objections to the assessment. The City issued a final determination, concluding that the furnishings located within each unit were owned by the Taxpayer and thus subject to the BTPP tax. Accordingly, the assessments were upheld. The Taxpayer appealed to the Department, contending that the unit owners should be considered the true owners of the furniture.

ANALYSIS

Tangible Personal Property

Virginia Code § 58.1-3500 defines tangible personal property as “all personal property not otherwise classified by (i) § 58.1-1100 as intangible personal property, (ii) § 58.1-3510 as merchants’ capital or (iii) § 58.1-3510.4 as short-term rental property. Such tangible personal property is hereby segregated for and made subject to local taxation only pursuant to Article X, Section 4 of the Constitution of Virginia .”

Virginia Code § 58.1-3503 provides for the general classification of tangible personal property. Under this section, certain tangible personal property is classified for valuation purposes by separate categories that are not, however, to be considered separate classes for rate purposes. Virginia Code § 58.1-3503(B) notes that the methods of valuing property may differ among the separate categories, so long as each method used is uniform within each category. Included among the 20 enumerated categories are properties employed in a business, and household goods and personal effects, except as exempted under Virginia Code § 58.1-3504.

In Public Document (P.D.) 04-19 (6-01-2004), the Department determined that furniture owned by the owner’s association of a timeshare condominium and used in timeshare units did not qualify for the exemption for household goods under Virginia Code § 58.1-3504 but rather was subject to BTPP tax as tangible personal property employed in a trade or business. The Taxpayer concedes that it owned the furniture at issue, but urges the Department to revisit the determination made in P.D. 04-19 on a number of grounds, each of which will be addressed in turn.

Federal Income Tax Returns

The Taxpayer asserts that it was not required to depreciate the furniture for federal income tax purposes. The local BTPP tax, however, is separate and distinct from income tax and governed by a different legal framework. In this case, whether the furniture was depreciable or not for federal income tax purposes had no bearing on its classification as tangible personal property employed in a trade or business for BTPP tax purposes.

Household Exemption

The Taxpayer refers to a 2014 amendment to the exemption for household goods set forth in Virginia Code 58.1-3504. As the Department observed in P.D. 04-19, the exemption required that the property be “owned and used by an individual or by a family or household incident to maintaining an abode.” Although H.B. 589 (2014 Acts of Assembly , Chapter 279) added the word “primarily” before “incident to maintaining an abode,” this addition makes no difference to the outcome because the fact remains that the timeshare owners who used the units as an abode did not own the furniture.

Responsibility for Loss

The Taxpayer points out that if an owner or guest destroyed the furniture, they were responsible for replacing it, not the Association. While this may be how the Taxpayer and the owners agreed to handle the destruction of property, it had no bearing on the Taxpayer’s legal ownership of the furniture.

Rental Business Property

The Taxpayer asserts that the furniture was only occasionally used for rentals. The taxpayer in P.D. 04-19 also argued that it did not hold property solely for rentals. Acting as a rental agent on behalf of the timeshare owners was one of the ways in which the taxpayer in P.D. 04-19 was “doing business.” The taxpayer did business in other ways as well, such as maintaining the building and selling vacant unit weeks. The furniture in this case did not have to be exclusively or even primarily used in a rental business in order to be subject to BTPP tax. The question is whether it was employed in a trade or business generally.

Nonprofit Entities

The Taxpayer observes that it did not qualify for relief under the Paycheck Protection Program (PPP) as a nonprofit entity. The Taxpayer complains that it is treated as a business for tax purposes when it is convenient, but not when it could get a benefit. While I empathize with the Taxpayer's frustration, the PPP was a federal program, the Taxpayer’s eligibility for which has no bearing on a local property tax matter.

Condominium Sales Business

The Taxpayer explains that it did not engage in the sale of unit weeks that were without owners. Although the taxpayer in P.D. 04-19 did engage in such sales as to a very small percentage of available units, that fact alone did not determine the outcome of that case. Similar to the answer above, the furniture did not have to be owned and used by a taxpayer who was selling unit weeks in order to be subject to taxation. Reference must be made to all of the facts and circumstances of a case to determine whether property was employed in a trade or business.

Amending Association Agreements

Finally, the Taxpayer contends that some localities have allowed timeshare owner associations to amend their governing documents so that they are not liable for BTPP tax. It asserts that the City has not given it the same opportunity. The Department has the authority to address the appeal of local tax assessments. See Virginia Code § 58.1-3983.1 D 1. It does not have the authority to order Commissioners of Revenue or other taxing officials to allow taxpayers to amend legal documents.

DETERMINATION

Based on the facts presented, it appears that the Taxpayer was at a minimum in the business of operating the Building and sometimes acting as a rental agent on behalf of the timeshare owners. According to the governing documents, all the furniture in the units was the property of the Taxpayer, not the owners. Such furniture falls under the classification of tangible personal property employed in a trade or business and is subject to the BTPP tax. As such, the assessment of BTPP tax for the 2016 through 2018 tax years is upheld.

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

Sincerely,

Craig M. Burns

Tax Commissioner

AR/3681.B

Related Documents

04-19