I filed a refund claim with my county for prior years' business tangible personal property tax, and the county denied part of it as filed too late under the appeal deadline -- but I thought refund claims had a longer filing window?

Plain-English summary

A company that manufactures ready-to-serve meals for airlines had filed its Business Tangible Personal Property (BTPP) tax returns classifying itself as a "business service." It later filed refund claims under Va. Code § 58.1-3980 with its county for the 2017-2020 tax years, arguing it should actually have been classified as a manufacturer (which generally carries more favorable local property tax treatment). The county denied the 2017-2018 portion, saying the claim came in outside the statute of limitations, and denied the 2019-2020 portion on the merits, concluding the company was correctly a business service. The company appealed to the Department.

The Department didn't reach the manufacturer-classification question at all -- because the county had gotten the procedure wrong from the start. A locality that receives a refund claim based on a taxpayer's own alleged prior mistake isn't supposed to immediately issue an appealable "final local determination." Instead, it has two choices: simply grant the request, or perform some kind of verification review (like an audit) -- and if it reviews, due process requires telling the taxpayer the results and, if denied, the reasons why. Only after that response can the taxpayer actually file a formal local appeal, which is a distinct next procedural step with its own separate timeline. Here, the county instead issued what amounted to a "final local determination" straight off the initial refund claim, skipping that intermediate step -- the same procedural mistake the Department had already flagged to this same county in an August 2021 letter about a different taxpayer's 2012-2016 refund claim.

That procedural mix-up mattered a lot for the statute-of-limitations question, too. A local tax refund claim has its own three-year statute of limitations (Va. Code § 58.1-3990: no refund for an application filed more than three years after the last day of the assessed tax year), which is longer than the one-year deadline for filing a local appeal (Va. Code § 58.1-3983.1 B 1). The earliest year here was 2017, so a timely refund claim needed to be filed by December 31, 2020 -- and the company's claim was filed December 29, 2020, within that three-year window. By treating the refund claim as if it were an "appeal" instead, the county wrongly applied the shorter one-year appeal deadline and concluded (incorrectly) that the 2017-2018 portion was untimely. Because the county's determination had responded to the refund claim rather than to a proper local appeal, the Department found the whole matter wasn't yet ripe for its review: the company can now file a genuine local appeal from the county's response, and only after the county issues a proper final determination on that appeal (or after other statutory alternatives) would either a further Department appeal or a circuit court case become available.

What this means for you

Businesses filing a refund claim with a locality based on their own prior classification or reporting mistake

A refund claim under Va. Code § 58.1-3980 is a different procedural step from a formal local administrative appeal under Va. Code § 58.1-3983.1, and it runs on a longer, three-year statute of limitations (from the end of the assessed tax year), not the one-year appeal deadline. If your locality denies your refund claim citing the shorter one-year deadline, that may be the wrong standard.

Anyone whose locality issues what looks like a "final determination" in direct response to their first refund request

That may be procedurally premature. A locality receiving an initial refund claim should either grant it or conduct a review and report the results -- only after that response can you file a genuine local appeal, which is the step that actually leads (eventually) to Department or court review on the merits.

Manufacturers mis-classified as a general business service for local BTPP tax purposes

Classification disputes like manufacturer-versus-service can be pursued either as a fresh assessment appeal or, if you believe you overpaid in past years due to a wrong classification, as a refund claim -- but understand which procedural track you're on, since each has its own deadlines and next steps.

Common questions

Q: My county denied my local tax refund claim, saying I missed the deadline -- but I thought I had three years to file. What happened?
A: The county may have mistakenly applied the one-year deadline for filing a local administrative appeal instead of the three-year statute of limitations that actually applies to refund claims under Va. Code § 58.1-3990. If your refund claim was filed within three years of the end of the tax year at issue, it should be considered timely regardless of any one-year appeal deadline.

Q: Is a refund claim the same thing as filing a local tax appeal?
A: No. A refund claim challenging your own prior filing is a separate, earlier procedural step. The locality should respond to it (by granting it or reviewing and reporting results) before a formal local appeal -- with its own separate deadline -- can be filed.

Q: The county issued something calling itself a "final determination" in response to my first refund request -- can I appeal that straight to the Department?
A: Not necessarily. If that response was really answering an initial refund claim rather than a properly filed local appeal, the Department may find it doesn't have jurisdiction yet, and you may need to file a genuine local appeal from that response first.

Citations and references

• Va. Code § 58.1-3980 (procedure for a local business tax refund claim; also a pathway for appeal to circuit court)
• Va. Code § 58.1-3983.1 B 1 (one-year deadline to file a local administrative appeal of a local business tax assessment)
• Va. Code § 58.1-3983.1 (local appeal procedure; Department jurisdiction only after a final local determination)
• Va. Code § 58.1-3990 (three-year statute of limitations to apply for a refund of local taxes, measured from the last day of the assessed tax year)
• P.D. 11-124 (7/1/2011) (a locality has discretion to simply grant or perform a verification review of a refund request, rather than issue an appealable final determination straight from that request)

Subject

Administration: Appeal - Process for Refund Claims, Jurisdiction

Source

• Landing page: Virginia Laws, Rules & Decisions
• Ruling: P.D. 22-113

Original ruling text

June 21, 2022

Re: Appeal of Final Local Determination

Taxpayer: *

Locality Assessing Tax: *

Business Tangible Personal Property Tax

Dear *:

This notice of jurisdiction is issued upon the application for correction filed by you on behalf of * (the “Taxpayer”), with the Department of Taxation. The Taxpayer appeals the denial of refunds of business tangible personal property (BTPP) tax paid to *** (the “County”) for the 2017 through 2020 tax years.

The following determination is based on the facts presented to the Department summarized below. The regulations and public documents cited are available on-line at www.tax.virginia.gov in the Laws, Rules and Decisions section of the Department’s web site.

FACTS

The Taxpayer is a producer of ready to serve meals for airliners. It filed its BTPP tax returns classifying itself as business service. The Taxpayer subsequently filed refund claims pursuant to Virginia Code § 58.1-3980 with the County for the 2017 through 2020 tax years, contending it should have been classified as a manufacturer for purposes of the BTPP tax.

The County denied the refund requests for the 2017 and 2018 tax years on the basis that they were filed outside the statute of limitations. The County further denied the refund requests for the 2019 and 2020 tax years, concluding that the Taxpayer was a business service. The Taxpayer appealed the County’s determination to the Department, contending it was exempt from BTPP taxation because it was a manufacturer.

ANALYSIS

In a letter to the County dated August 10, 2021, previously issued with respect to the 2012 through 2016 tax years, the Department explained that it is not procedurally correct for the County to issue a final local determination in response to a taxpayer’s initial refund claim. The Department explained that it had re-examined the policy that when a locality receives a refund request from a taxpayer, the locality has the discretion to simply deny the request or issue a final determination appealable directly to the Department. See P.D. 11-124 (7/1/2011). The Department clarified its policy to say that when a locality receives a refund claim based on errors a taxpayer believes it previously made, the locality has the discretion to 1) simply grant the request; or 2) perform a verification process, such as an audit. Should the locality choose to perform a review, fundamental due process requires that the taxpayer be informed of the results of that review, and if the claim is denied in whole or in part, also be informed of the reasons for such denial.

The procedural background of this case is like the situation that was addressed in the August 2021 letter to the County. There, the Taxpayer requested a refund for the 2012 through 2016 tax years on the basis that it had erroneously paid BTPP taxes to the County. The County later issued a purported “Final Local Determination Letter” in response to the Taxpayer’s “appeal application.” The Taxpayer, however, had not filed an appeal. Amended returns or refund claims seeking to correct mistakes in a taxpayer’s own filings are not appeals. The letter instructed the County that in such cases, it should either grant the request, or perform a verification process. If the County choose to perform a verification process, the taxpayer should be informed of the results of that review and then should be given the opportunity to appeal the County’s decision. Like the previous case, here the County proceeded to issue a final local determination in response to an initial refund claim, not a local appeal.

The statute of limitations issue raised by the County in this case illustrates the significance of following proper local appeals procedures. Section 4-4-1 of the County’s ordinances provides that “Any person who has paid a local levy or levies and who is entitled to a refund may apply for a refund of such taxes in accordance with Section 4-4-2 within the time provided by Virginia law.” Virginia Code § 58.1-3990 provides that “No refund shall be made in any case when application therefor was made more than three years after the last day of the tax year for which such taxes were assessed.” The earliest tax year at issue in this case was 2017. Therefore, to have made a timely refund claim, the Taxpayer had to have submitted it to the County on or before December 31, 2020. The records show that the claim was filed on December 29, 2020, prior to the expiration of the statute of limitations. By treating the refund claim as an “appeal,” however, the County erroneously invoked the one year statute of limitations to file an appeal as set forth in Virginia Code § 58.1-3983.1 B 1 to conclude that the Taxpayer’s 2017 and 2018 refund claim was filed outside the statute of limitations. Until the County issued its response denying the refund claim, however, the one year statute of limitations to appeal had not yet begun to run.

DETERMINATION

In this case, the Taxpayer filed a refund claim, the County issued a response, and the Taxpayer should now be afforded an opportunity to participate in the local appeals process. Because the County has issued a response, the Taxpayer may now file a local appeal under Virginia Code § 58.1-3980 or § 58.1-3983.1. If the County issues a final determination and the Taxpayer disagrees with the outcome, then the Taxpayer may appeal to the Department under Virginia Code § 58.1-3983.1 or the local circuit court through the process starting under Virginia Code § 58.1-3980. Until the local appeals process is completed, the Department does not have jurisdiction to decide the Taxpayer’s appeal on the merits.

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

Sincerely,

Craig M. Burns

Tax Commissioner

AR/4125.Y

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