My county responded to my refund claim by issuing what it called a 'final local determination' -- can I appeal straight to the Department of Taxation, or do I have to go through a local appeal first?

Plain-English summary

A business that extracts limestone from open-pit quarries filed amended Machinery and Tools (M&T) tax returns for the 2017 through 2019 tax years, claiming it should only owe local M&T tax on the machinery and tools used in what it called its "mining" operation -- with everything else treated as exempt intangible property under Va. Code § 58.1-1101. The county denied the refund, concluding the business was really a "processor," not a miner, so the equipment stayed taxable. The taxpayer then appealed straight to the Department of Taxation.

The Department didn't reach that mining-vs-processing question at all. Instead, it identified a procedural problem: a refund claim or amended return isn't itself an "appeal." When a locality responds to one by issuing something it calls a "final local determination," that doesn't count as the kind of decision a taxpayer can appeal to the Department -- the locality should instead have either granted the refund outright or done its own verification and then told the taxpayer how to file a proper local appeal (the same procedural gap identified in P.D. 22-113). Because that proper local appeal hadn't happened yet, the Department ruled it has no jurisdiction to decide the merits. The taxpayer's path forward is to file a local appeal under Va. Code § 58.1-3980 or § 58.1-3983.1; only after the county issues a genuine final determination on that appeal can the dispute come back to the Department (or go to circuit court).

Even while declining jurisdiction, the Department flagged something useful for whatever forum does end up deciding the case: it has already held, in P.D. 23-43 and P.D. 23-93, that "mining" for M&T tax purposes includes extracting limestone from a quarry -- a point directly relevant to this taxpayer's core argument.

(A closely related M&T dispute over limestone-quarry mining classification, for the 2018 through 2021 tax years, is addressed in the companion ruling P.D. 24-27, issued the same day.)

What this means for you

Businesses appealing a local tax refund denial

If you file an amended return or refund claim with your locality and it's denied, that denial by itself doesn't complete the "appeal" process required before the Department (or a court) can rule on the merits. You generally need to file an actual local appeal under Va. Code § 58.1-3980 or § 58.1-3983.1 first -- don't assume a locality's response to your refund claim already satisfies that step.

Quarrying and mining businesses specifically

Separately from the jurisdiction issue, the Department has already decided (P.D. 23-43, P.D. 23-93) that limestone extraction from a quarry counts as "mining" for M&T tax purposes -- worth raising in your local appeal if your locality is taxing quarry equipment as non-exempt "processing" equipment.

Common questions

Q: My county denied my refund claim and called its response a "final local determination" -- can I go straight to the Department of Taxation?
A: Not based on this ruling. A refund claim or amended return isn't itself an "appeal," so a locality's response to it isn't the kind of decision the Department has jurisdiction to review. You need to file a proper local appeal first.

Q: What do I do next if the Department says it has no jurisdiction?
A: File a local appeal of the original assessment under Va. Code § 58.1-3980 or § 58.1-3983.1. If the locality then issues a genuine final determination and you disagree, you can appeal to the Department under § 58.1-3983.1 or to circuit court under § 58.1-3980.

Q: Does the Department ever weigh in on the underlying dispute in a ruling like this?
A: Not on the merits -- but it can still flag relevant precedent. Here, even while declining jurisdiction, the Department pointed out it has already held that quarrying limestone counts as "mining" (P.D. 23-43, P.D. 23-93), which the taxpayer and county should consider in the local appeal.

Citations and references

Statutes:

• Va. Code § 58.1-1101 -- referenced for the definition of "mining" relevant to Machinery & Tools tax classification
• Va. Code § 58.1-3980 -- local tax assessment appeal to circuit court
• Va. Code § 58.1-3983.1 -- administrative appeal of local business tax (including M&T) assessments

Prior rulings referenced (described here, not linked): P.D. 22-113 (6/21/2022) -- a refund claim/amended return isn't itself an appeal; P.D. 23-43 (4/12/2023) and P.D. 23-93 (8/3/2023) -- "mining" under Va. Code § 58.1-1101 includes extracting limestone from a quarry.

Source

• Landing page: Virginia Laws, Rules & Decisions
• Ruling: P.D. 24-25

Original ruling text

March 20, 2024

Re: Appeal of Final Local Determination

Taxpayer: *

Locality: *

Machinery and Tools (M&T) 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 a refund of Machinery & Tools (M&T) tax paid to *** (the “County”) for the 2017 through 2019 tax years. I apologize for the delay in responding. The appeal was timely received by the Department but was not forwarded to the Appeals division. Once discovered, the Department took immediate action to respond.

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

FACTS

The Taxpayer operated a business that extracted limestone from open pit quarries in the County. It also had operations in other Virginia localities and in * (State A). The Taxpayer filed amended M&T tax returns for the 2017 through 2019 tax years, claiming it was only subject to the M&T tax on machinery and tools used in what the Taxpayer characterized as its mining operation in the County and any other assets that were not such machinery and tools were not subject to local property tax because they were considered intangible assets as defined by Virginia Code § 58.1-1101.

The County denied the Taxpayer’s refund claim, concluding that its operations were properly characterized as processing and, thus, the assets the Taxpayer was seeking to exempt generally remained subject to local property tax. The Taxpayer appealed to the Department, contending that it is due the remaining refund because it was a mining business, not a processor.

ANALYSIS

The procedural background of this case is similar to the facts of Public Document (P.D.) 22-113 (6/21/2022). In that case, the taxpayer requested a refund on the basis that it had erroneously paid BTPP taxes to the locality. The locality 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. In such cases, the locality should either grant the request, or perform a verification process. If the locality chooses 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 locality’s decision. Like that case, here the County proceeded to issue a final local determination in response to the Taxpayer’s initial refund claim, instead of denying the refund and informing the Taxpayer of its local appeal rights.

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 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.

Even through the Department does not have jurisdiction to respond to the Taxpayer’s appeal, the County and the Taxpayer should be aware that the Department has determined that mining includes the extraction of limestone from a quarry for purposes of Virginia Code § 58.1-1101. See Public Document (P.D.) 23-43 (4/12/2023) and P.D. 23-93 (8/3/2023). The Taxpayer and the County should review these determinations in connection with any local appeal the Taxpayer may file.

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/4751.B

Related Documents

22-113

23-43

23-93