If I appeal a locality's refund decision under Va. Code § 58.1-3980, can I still bring the same dispute to the Virginia Department of Taxation instead of circuit court?

Plain-English summary

This ruling is a sequel to an earlier Department determination, P.D. 20-134, which had told a processor's city that some of its equipment should be taxed at the lower machinery-and-tools (M&T) rate and some at the higher business tangible personal property (BTPP) rate, and sent the case back to the city to sort out which equipment fell into which bucket. The city did that work, reclassified some property, and issued the processor a partial refund based on the new classification.

The processor didn't think the city got the classification right and appealed the city's refund decision -- but it did so by citing Va. Code § 58.1-3980 specifically ("...pursuant to Code of Virginia § 58.1-3980, the Taxpayer hereby appeals..."). The city responded with a final determination denying the appeal and telling the processor that any further appeal needed to go to circuit court, which is exactly what § 58.1-3980 requires. The processor then tried to appeal that city determination to the Department instead, arguing the city never made clear which of two overlapping statutes -- § 58.1-3980 or § 58.1-3983.1 -- its determination was actually issued under.

This gets at a genuinely confusing wrinkle in Virginia's local tax appeal system: two different statutes let a taxpayer challenge a local assessment (or, as here, a refund denial, which counts as an "assessment" for this purpose), but they lead to different next steps. Appeal under § 58.1-3980 and your next stop, if you disagree with the locality's answer, is circuit court. Appeal under § 58.1-3983.1 instead, and you get to escalate to the Department of Taxation within 90 days if the locality denies your appeal. The Department found the city's response was clearly issued under § 58.1-3980 -- it said so, and it correctly instructed the processor to go to circuit court next -- because that's the statute the processor itself invoked when it filed its appeal with the city. Since the Department's jurisdiction only extends to appeals that went through the § 58.1-3983.1 track, it had no authority to hear this one.

The Department distinguished this from an earlier ruling, P.D. 19-62, where a taxpayer's local appeal became reviewable by the Department because the locality hadn't actually acted on the taxpayer's refund claim until it issued its own (mislabeled) "final determination" letter -- meaning that letter was really the taxpayer's first opportunity to appeal, under either statute. Here, by contrast, the city had already taken concrete action on the processor's refund claim (following the Department's own P.D. 20-134 instructions) before the processor's § 58.1-3980 appeal was ever filed, so the § 58.1-3980 framework the processor chose governed from that point forward. The Department also refused the processor's request to order the city to accept a do-over appeal under § 58.1-3983.1, noting Virginia law doesn't provide a mechanism to fix a jurisdictional misstep by filing a second, different kind of local appeal.

What this means for you

Businesses appealing a locality's local business tax assessment or refund decision

Decide up front whether you want the Department of Taxation or circuit court to be your next stop if the locality rules against you -- and cite the matching statute (§ 58.1-3983.1 for a Department appeal, § 58.1-3980 for a circuit court appeal) in your very first filing with the locality. Once you invoke one statute and the locality responds under it, you're generally locked into that track; there's no do-over to switch to the other route later.

Businesses confused about whether a denied refund counts as an "assessment" they can appeal

Yes -- the Department treats a locality's denial of a refund request as an "assessment" for appeal purposes, meaning it can be challenged through either § 58.1-3980 or § 58.1-3983.1, just like a new tax bill could be.

Businesses whose case was remanded back to a locality by an earlier Department ruling

If the locality takes action on your case following the Department's remand instructions (here, adjusting a refund), that action itself can be the "assessment" that starts your appeal clock and determines which statute governs your next appeal -- pay close attention to which statute you invoke when you challenge that follow-up action.

Common questions

Q: What's the practical difference between appealing under § 58.1-3980 versus § 58.1-3983.1?
A: Both let you challenge a local tax assessment (including a refund denial), but they lead to different next steps if the locality rules against you: § 58.1-3980 sends you to circuit court, while § 58.1-3983.1 lets you appeal to the Virginia Department of Taxation within 90 days.

Q: Can I switch from one statute to the other if I realize I picked the wrong one?
A: Not according to this ruling. Once a taxpayer invokes § 58.1-3980 and the locality issues its final determination under that same statute, the Department found it had no mechanism to let the taxpayer instead pursue a fresh appeal to the locality under § 58.1-3983.1.

Q: Does a locality's denial of a refund count as an appealable "assessment"?
A: Yes -- consistent with prior guidance (P.D. 10-103), the Department treats a local taxing authority's refund denial as an assessment for purposes of filing an appeal under § 58.1-3983.1 (or, as here, § 58.1-3980).

Citations and references

• Va. Code § 58.1-3980 (local correction/refund request procedure; appeal to circuit court under § 58.1-3984)
• Va. Code § 58.1-3983.1(B)(1) (local business tax appeal procedure; escalation to the Department within 90 days)
• Va. Code § 58.1-3984 (circuit court appeal of local tax assessments)
• Guidelines for Appealing Local Business Taxes, P.D. 04-28 (6/25/2004) (defines "assessment")
• P.D. 10-103 (6/18/2010) (a refund denial counts as an assessment for appeal purposes)
• P.D. 18-197 (12/6/2018) (an appeal filed under § 58.1-3980 removes the Department's jurisdiction)
• P.D. 19-62 (6/17/2019) (distinguished: a locality's first substantive action on a claim can be appealed under either statute)
• P.D. 20-134 (8/11/2020) (the earlier Department ruling remanding this taxpayer's classification dispute to the city)

Subject

Administration: Jurisdiction

Source

• Landing page: Virginia Laws, Rules & Decisions
• Ruling: P.D. 22-145

Original ruling text

October 7, 2022

Re: Appeal of Final Local Determination

Taxpayer: *

Locality: *

Machinery and Tools Tax

Business Tangible Personal Property Tax

Dear *:

This notice of jurisdiction is issued upon the application for correction filed by * (the “Taxpayer”), with the Department. The Taxpayer appeals a determination issued by *** (the “City”) concerning whether all of its tangible property was subject to the machinery and tools (M&T) tax and exempt from the business tangible personal property (BTPP) tax for the 2016 through 2019 tax years because it was utilized in processing.

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

FACTS

In Public Document (P.D.) 20-134 (8/11/2020), the Department determined that the Taxpayer was a processor subject to the M&T tax on equipment used in processing and that all other property not used in processing was subject to the BTPP tax at the appropriate rate. The case was remanded back to the City in order to adjust the Taxpayer’s liability to reflect which equipment should have been classified as business tangible personal property and which equipment should have been classified as machinery and tools.

The City reviewed the Taxpayer’s property and classified some as business tangible property and some as machinery and tools. A refund was issued based on this reclassification. The Taxpayer appealed to the City under Virginia Code § 58.1-3980, contending that all its property was used in processing and thus should be taxed as machinery and tools. The City issued a final determination denying the Taxpayer’s appeal and instructing the Taxpayer that any additional appeals were to be filed with a circuit court pursuant to Virginia Code § 58.1-3984. The Taxpayer then simultaneously appealed the City’s determination to the City and to the Department, contending that the City did not properly classify certain equipment as machinery and tools.

ANALYSIS

Jurisdiction

Under § 1.4 of the Guidelines for Appealing Local Business Taxes , issued as P.D. 04-28 (6/25/2004), an “assessment” is defined as “a determination as to the proper rate of tax, the measure to which the tax rate is applied, and ultimately the amount of tax, including additional or omitted tax, that is due.” The denial of a refund by a local taxing authority would constitute an assessment for purposes of filing an appeal under Virginia Code § 58.1-3983.1. See P.D. 10-103 (6/18/2010).

Virginia Code § 58.1-3980 provides that any person aggrieved by an assessment of local taxes “may, within three years from the last day of the tax year for which such assessment is made, or within one year from the date of the assessment, whichever is later, apply to the commissioner of the revenue or such other official who made the assessment for a correction thereof.” Under this procedure, if the taxpayer disagrees in whole or in part with the local assessing officer’s determination, the taxpayer may then seek correction with the circuit court under the provisions of Virginia Code § 58.1-3984.

Virginia Code § 58.1-3983.1 B 1 provides that any person assessed with a “local business tax . . . 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.” Under this provision, if the taxpayer’s appeal is denied in part or completely by the local assessing official, the taxpayer may, within 90 days, appeal the assessment to the Department.

The City asserts that the Department lacked jurisdiction to address the Taxpayer’s appeal because it was submitted under Virginia Code § 58.1-3980. The Taxpayer contends that the City did not clarify whether its final determination was being issued under Virginia Code § 58.1-3980 or Virginia Code § 58.1-3983.1. The Taxpayer also argues that if the Department agrees that it lacks jurisdiction, then the Taxpayer should still be allowed to proceed to appeal to the City under Virginia Code § 58.1-3983.1.

In P.D. 18-197 (12/6/2018), the Department determined that if a taxpayer appeals an assessment to a locality under Virginia Code § 58.1-3980, the Department lacks jurisdiction to address the appeal. In this case, the Taxpayer’s appeal to the City stated “…pursuant to Code of Virginia § 58.1-3980, the Taxpayer hereby appeals the entire amount of the revised assessment.” The City’s final determination was in response to this appeal. As such, their final determination was clearly made pursuant to Virginia Code § 58.1-3980 as evidenced by its instruction to the Taxpayer that any further appeals needed to be submitted to the proper circuit court as required by Virginia Code § 58.1-3984.

The Taxpayer contends that if the Department determines that it lacks jurisdiction to address its appeal, then the City still has jurisdiction under Virginia Code § 58.1-3983.1 to respond to the appeal. In P.D. 19-62 (6/17/2019), a taxpayer filed a refund request with a locality under Virginia Code § 58.1-3980. The locality issued a final local determination under Virginia Code § 58.1-3980 and instructed the taxpayer to appeal to the circuit court under Virginia Code § 58.1-3984. The Department determined that the Taxpayer could still file an appeal to the locality under Virginia Code § 58.1-3983.1 because the final local determination issued by the locality was actually the denial of a refund which was an assessment that could be appealed through either Virginia Code § 58.1-3980 or Virginia Code § 58.1-3983.1.

In this case, the City adjusted the Taxpayer’s refund in accordance with the instructions issued by the Department in P.D. 20-134. The Taxpayer then appealed this refund denial “pursuant to Code of Virginia § 58.1-3980.” The difference between the facts of this case and the facts of P.D. 19-62 is that here, the locality issued a partial refund in response to the Department’s instructions in P.D. 20-134. In doing so, the City effectively took action as to the Taxpayer’s refund claim. It was this action that triggered the Taxpayer’s appeal rights to the locality. In P.D. 19-62, however, the locality did not take action on the Taxpayer’s claim until it issued a letter denying the claim. In that case, it was not until the taxpayer received the letter, styled inaccurately as a final local determination, that an event had occurred which the taxpayer could appeal to the locality.

Department Instructions

The Taxpayer requests that if the Department denies its appeal for lack of jurisdiction, the Department should instruct the City that it must still accept the Taxpayer’s appeal under Virginia Code § 58.1-3983.1 and that the City be held to its position in its final local determination. As stated above, the City has already addressed the Taxpayer’s appeal that was submitted under Virginia Code § 58.1-3980. Virginia law does not provide taxpayers with an avenue to submit another local appeal in order to correct a jurisdictional error. Further, to the extent any future characterizations of any proceedings before the City matter, the Department declines to rule prospectively on any future arguments the parties may make regarding the implications of such characterizations.

DETERMINATION

The Taxpayer appealed the 2016 through 2019 assessments under Virginia Code § 58.1-3980, which grants jurisdiction to the circuit court, not the Department, for local tax appeals. Therefore, the Department does not have jurisdiction to address the Taxpayer’s appeal. Rather, the appeal should have been made to a circuit court. Moreover, the Department declines to instruct the City to accept the Taxpayer’s appeal under Virginia Code § 58.1-3983.1, nor will it make any prospective rulings as to how the City may characterize such a filing or as to the implications of any characterization the City may make.

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/4161.B

Related Documents

20-134

04-28

10-103

18-197

19-62