My county says I'm barred from appealing new tax assessments because I never separately appealed its earlier refund denial on the same issue -- is that right, and does quarrying limestone count as taxable 'processing' or exempt 'mining' equipment?

Plain-English summary

A business that extracts limestone from open-pit quarries -- and, at the site in this case, also manufactures chemical quicklime -- filed amended Machinery and Tools (M&T) tax returns for the 2017 through 2019 tax years, seeking a refund on the theory that it should only owe local M&T tax on machinery and tools directly used in its "mining" operation. The county denied the refund in a July 2021 letter, concluding the business was conducting processing and manufacturing at the site, not mining, so all of its processing equipment remained taxable. The county then issued new M&T assessments for the 2018 through 2021 tax years -- some of which the taxpayer said covered equipment already reported as taxable on its original returns.

The taxpayer appealed those new assessments to the county, arguing the "processing" equipment was really used in mining and that some equipment was being taxed twice. The county's May 2022 final determination took the position that the taxpayer was procedurally barred from appealing at all, because it hadn't separately appealed the county's original refund denial within 90 days.

Jurisdiction: a refund denial isn't a determination you must separately appeal. The Department disagreed with the county's procedural bar, for the same reason given in P.D. 22-113: an amended return or refund claim is not itself an "appeal," so a locality's response to one isn't a "final local determination" that starts an appeal clock the taxpayer must separately beat. And regardless, even if the original letter had been a proper final determination on the refund request, that wouldn't have stopped the taxpayer from appealing the entirely new assessments issued afterward for 2018-2021. So the Department had jurisdiction to decide this appeal.

Duplication of assessment. The taxpayer said some of the new 2018-2019 assessments taxed equipment it had already reported. The county said the new assessments covered additional equipment the taxpayer hadn't previously disclosed. The Department didn't resolve this factual dispute itself -- it held that local assessing officers can require taxpayers to produce records under Va. Code §§ 58.1-3109(6) and 58.1-3983.1(B)(3), and sent the documentation question back to the county and taxpayer to sort out.

Mining vs. quarrying -- the substantive question. The county's position was that operating a quarry is different from "mining," so equipment used in quarrying and stone-crushing stayed taxable as processing equipment. The Department rejected that distinction: it had already held, in P.D. 23-43 and P.D. 23-93, that the ordinary meaning of "mining" in Va. Code § 58.1-1101 includes extracting limestone from a quarry -- reasoning that quarrying is simply the more specific term for mining stone, consistent with NAICS industry classifications and Virginia's mine-safety regulatory scheme. The county's cited case, Solite Corp. v. King George County, only addressed whether crushing stone was "manufacturing" for BPOL tax purposes and didn't decide the mining question at all.

Outcome: remanded, not resolved outright. Because whether particular equipment was actually used in mining operations (versus a separate manufacturing business, like the quicklime operation) is a factual question, the Department remanded the case to the county to determine which equipment qualified as exempt mining equipment and which didn't -- along with resolving the duplicate-assessment documentation issue. The Department also acknowledged its own delay: the appeal reached the Department on time but wasn't forwarded to the Appeals division promptly, requiring it to use its statutory extension under Va. Code § 58.1-3983.1(D)(3) beyond the normal 90-day response window.

(A related M&T dispute over the same limestone-quarrying/mining classification question, for the 2017 through 2019 tax years, is addressed in the companion ruling P.D. 24-25, issued the same day -- there, the Department found it lacked jurisdiction because no proper local appeal had yet occurred. A later ruling, P.D. 25-4, involving the same taxpayer and locality's 2022 tax year, applies this same mining-classification holding to remand a subsequent assessment.)

What this means for you

Businesses in quarrying, mining, or mineral-processing operations

Virginia's Machinery and Tools tax exemption for mining equipment isn't limited to traditional underground mines -- extracting limestone (or similar stone) from an open-pit quarry counts as "mining" under Va. Code § 58.1-1101. If your locality is taxing quarry equipment as non-exempt "processing," that classification can be challenged, though a case-by-case factual determination of which specific equipment was actually used in mining still has to happen at the local level.

Taxpayers navigating a two-step local dispute (refund claim, then new assessments)

Appealing a later, distinct assessment doesn't require you to have separately appealed an earlier refund denial addressing the same underlying issue -- especially where the earlier response wasn't itself a proper "final local determination" (because it responded to a refund claim/amended return, not a filed appeal).

Common questions

Q: My county now says I'm barred from appealing because I didn't appeal its earlier refund denial -- is that right?
A: Not based on this ruling. A refund claim or amended return isn't itself an "appeal," so the county's response to it doesn't bar you from later appealing a new, distinct assessment on the same underlying issue.

Q: Does quarrying limestone count as "mining" for Machinery & Tools tax purposes?
A: Yes, according to the Department's consistent position (here and in P.D. 23-43, P.D. 23-93, and later P.D. 25-4) -- but whether any particular piece of equipment was actually used in mining, as opposed to a separate processing or manufacturing operation, is still a factual question for the locality to determine.

Q: What happens when a locality claims a taxpayer's assessment covers equipment that's already been taxed?
A: The Department doesn't resolve that factual dispute in the ruling itself -- it directs the taxpayer to supply documentation to the locality (which has statutory authority to demand it) and the locality to revise the assessment and issue a new final determination.

Citations and references

Statutes:

• Va. Code § 58.1-3983.1 B, D 1, D 3 -- local business tax (including M&T) appeal procedure, Department's authority to decide M&T appeals, and the 90-day determination deadline
• Va. Code § 58.1-1101 -- definition relevant to "mining" for Machinery & Tools tax classification
• Va. Code § 58.1-3109 6 -- local assessing officer's authority to require records for an accurate assessment

Cases cited: Solite Corp. v. King George County, 220 Va. 661, 261 S.E.2d 535 (1980) (distinguished -- addressed only whether crushing stone was "manufacturing" for BPOL purposes, not the mining/quarrying distinction); County of Chesterfield v. BBC Brown Boveri, 238 Va. 64, 380 S.E.2d 890 (1989); Coca-Cola Bottling Co. of Roanoke, Inc. v. County of Botetourt, 259 Va. 559, 526 S.E.2d 746 (2000).

Prior rulings referenced (described here, not linked): P.D. 14-22 (2/26/2014) -- whether equipment is taxable is a factual question for the locality; 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 limestone quarrying.

Source

• Landing page: Virginia Laws, Rules & Decisions
• Ruling: P.D. 24-27

Original ruling text

March 20, 2024

Re: Appeal of Final Local Determination

Taxpayer : *

Locality : *

Machinery and Tools (M&T) tax

Dear * :

This final state determination is issued upon the application for correction filed by you on behalf of * (the “Taxpayer”) with the Department of Taxation. You appeal the assessment of Machinery and Tools (M&T) tax issued to the Taxpayer by *** (the “County”) for the 2018 through 2021 tax years.

The M&T 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 M&T 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 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 similar operations in other Virginia localities and in * (State A). The activities at the site at issue in this case were substantially similar to those described in Public Document (P.D.) 23-43 (4/12/2023), except that at this site, the Taxpayer also manufactured chemical quicklime.

The Taxpayer filed amended M&T tax returns for the 2017 through 2019 tax years, requesting a refund on the basis that it was only subject to the M&T tax on the machinery and tools directly used in its mining operations and that all other assets involved in the mining operations were exempt from local property taxation. The County denied the refunds by a letter issued in July 2021. The County determined that the Taxpayer was conducting both processing and manufacturing activities at the site, but not mining. The County concluded that all of the equipment involved in the Taxpayer’s processing activities was subject to the M&T tax.

Subsequently, the County issued assessments for the 2018 through 2021 tax years. The 2018 and 2019 assessments were for some additional equipment that the County claimed the Taxpayer had omitted on their original returns. The 2020 and 2021 assessments resulted from adjustments made to those returns consistent with the determination the County had made as to the prior years’ returns.

The Taxpayer filed an appeal with the County, contending that the assessments for the 2018 and 2019 tax years were for equipment that had already been reported as taxable on its original returns. The Taxpayer also asserted that the activities the County considered to be processing were actually mining and as such, any equipment that was not directly used in the mining operation was not subject to local taxation.

The County issued a final local determination in May 2022, asserting that its July 2021 letter constituted its final determination as to these issues and that the Taxpayer should have filed an appeal with the Department within 90 days of that letter. Nevertheless, the County reiterated its previous conclusion that the equipment the Taxpayer was treating as exempt was used in quarrying, not mining, and thus remained subject to tax under the processing designation. Finally, the County determined that the 2018 and 2019 assessment of tax for additional equipment was valid because the Taxpayer had not submitted requested filings for all its furniture, fixtures and equipment.

The Taxpayer appealed to the Department, contending that the activities the County designated as processing were mining and that the County was attempting to tax the same equipment twice in the 2018 and 2019 tax years.

ANALYSIS

Response Delay

Virginia Code § 58.1-3983.1 D 3 requires that the Department issue a final written determination within 90 days of receipt of the appeal unless the taxpayer and locality are notified that more time will be needed. In this case, the appeal was timely received by the Department but was not forwarded to the Appeals division. Once discovered, the Department took immediate action to begin working the appeal but must make use of the extension allowed under the law.

Jurisdiction

In its final determination letter of May 2022, the County reasoned that, because the Taxpayer did not appeal the County’s July 2021 determination to the Department, it was procedurally barred from appealing the assessments.

The procedural background of this case is similar to the facts of 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 2017 through 2019 amended returns, instead of denying the refund and informing the Taxpayer of its local appeal rights.

Regardless, Virginia Code § 58.1-3983.1 B provides:

. . . Any person assessed with any local mobile property tax or 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 . . .

. . . The appeal shall be filed in good faith and 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 commissioner of the revenue or other assessing official shall undertake a full review of the taxpayer’s claims and issue a written determination to the taxpayer setting forth the facts and arguments in support of his decision within 90 days after such appeal is filed.

As such, so long as a taxpayer appeals an assessment of a business tax within the period of limitations and files a proper appeal, the locality must address the appeal and issue a final local determination.

In this case, the Taxpayer clarified that it is was not appealing the denial of the amended returns addressed in the County’s April 2017 letter. Rather, it was just appealing the assessments that were issued subsequent to that letter. These were new assessments issued for the 2018 through 2021 tax years. Even if the April 2021 letter had been a proper final local determination regarding the refund requests for the 2017 through 2019 tax years, that letter still would not have prevented the Taxpayer from being able to file the current appeal for the subsequent assessments. Further, the fact that the County had already addressed the processor classification issues in the April 2021 letter would not have procedurally barred the Taxpayer from filing the current appeal.

Duplication of Assessment

The Taxpayer states that it was not disputing the denial of its 2018 and 2019 amended returns. However, it claims that the County’s new assessments as to these years cover property already included in the Taxpayer’s original returns. The County argues that the assessment was for equipment it believed to be in addition to the original assets filed and that the Taxpayer had not provided filings that included all of its furniture, fixtures, and equipment.

Virginia Code § 58.1-3109 6 grants local assessing officers the authority to require records and other information necessary to make an accurate assessment of a taxpayer's tangible personal property. In addition, pursuant to Virginia Code § 58.1-3983.1 B 3, a local assessing officer may require the submission of additional information or documentation in order to make a proper and equitable determination of an application for correction. As such, it is incumbent upon a taxpayer to prove to the satisfaction of the local taxing authority that it properly sitused and reported gross receipts on its tax returns.

Mining and Quarrying

In its April 2022 final determination, the County concluded that the Taxpayer was not a mining business because it was operating a quarry, not a mine. The Department has recently addressed this distinction for purposes of the local BTPP and M&T tax. In P.D. 23-43 and P.D. 23-93 (08/03/2023), the Department determined that the term “mining” in Virginia Code § 58.1-1101 includes the extraction of limestone from a quarry. The Department reasoned that quarrying is a more specific term for the mining of stone based on dictionary definitions in the absence of an applicable statutory definition, and that including quarrying with the broader definition of mining was consistent with the NAICS industry descriptions and Virginia’s regulatory regime applicable to mine safety.

In support of its position, the County cited Solite v. King George County , 220 Va. 661, 261 S.E.2d 535 (1980), in which the court referred to the extraction of rock from the earth and the crushing of stone as quarrying. The court in Solite , however, merely addressed whether the crushing of stone constituted manufacturing for purposes of the BPOL tax, and it did not determine whether that business was engaged in mining, manufacturing, or processing. See P.D. 23-43.

DETERMINATION

The ordinary usage of the word mining includes the extraction of limestone from a quarry. This definition of mining is supported by NAICS industry descriptions and Virginia’s regulatory regime applicable to mine safety. In the Department’s opinion, any machinery and tools used in mining, including any machinery and tools involved in preparation activities customarily performed at a mine site, would be subject to the M&T tax. Property not used in such mining processes would be exempt from local property taxation unless and to the extent a taxpayer may have conducted a separate business subject to its own local tangible personal property tax. See also County of Chesterfield v. BBC Brown Boveri, 238 Va. 64, 380 S.E.2d 890 (1989) and Coca-Cola Bottling Co. of Roanoke, Inc. v. County of Botetourt, 259 Va. 559, 526 S.E.2d 746 (2000), P.D. 23-43, and P.D. 23-93. In this case, it appears that the County has already concluded that the Taxpayer was conducting a separate manufacturing business at the site at issue, and the Taxpayer has raised no objection to that conclusion.

A determination as to whether particular equipment is subject to the business property tax is, however, a matter of fact. See P.D. 14-22 (2/26/2014). Such examinations remain the prerogative of the local taxing authority. Therefore, I am remanding this case to the County in order to make a determination as to what property was utilized in the Taxpayer’s mining operations and what property was exempt.

Further, the Taxpayer is instructed to provide the County with the information it previously requested as to the 2018 and 2019 tax years in order to ensure that no duplication of assessments has occurred. The Taxpayer should supply the County with this information within 30 days of the date of this letter, or by another deadline mutually agreed on by the Taxpayer and the County. The County must then revise the assessments issued for the 2018 through 2021 tax years and issue a new final local determination. If the Taxpayer continues to disagree with the results of that determination, it may appeal to the Department within 90 days of the final determination.

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/4750.B

Related Documents

14-22

22-113

23-43

23-93