My county says our theme park's rides are taxable personal property because they can technically be removed, and denied our refund for over-reported disposed assets by calling our accounting errors 'willful' -- are they right?

Plain-English summary

A themed amusement park appealed its county's denial of business tangible personal property (BTPP) tax refunds for the 2017 through 2020 tax years, on two entirely separate issues -- and won on both.

Issue 1: are the park's rides taxable personal property, or exempt real-property fixtures?

BTPP tax applies only to tangible personal property; once an item is classified as a fixture, it's treated as real property instead and is outside BTPP tax entirely. Virginia's fixture test comes from the 1941 Virginia Supreme Court case Danville Holding Corp. v. Clement, which set out three factors: (1) annexation (how the item is attached, actual or constructive), (2) adaptation (how essential the item is to the use of that part of the property), and (3) intention -- whether the party installing it meant it as a permanent addition. Intent is the "paramount and controlling consideration," and the Department has applied this same three-prong standard consistently for decades (citing its own precedents from 1996 through 2021).

The county tried a different, narrower test -- and the Department rejected it. The county argued that a 2010 statute (Va. Code § 58.1-3379 B) requires fixture classification to follow modern appraisal-industry standards from the International Association of Assessing Officers (IAAO), and that under an IAAO glossary definition, a fixture is only something whose removal would "damage" the property or the item itself -- since amusement rides are "demonstrably removable" (and sometimes sold on a secondary market), the county said they must be personal property. The Department found several problems with this argument: (1) § 58.1-3379 B actually governs how Boards of Equalization value REAL property assessments, not how to classify an item as personal-vs-real property in the first place; (2) the statute says appraisal standards "such as" the IAAO's, not exclusively the IAAO's; (3) even the IAAO's own glossary definition isn't a pure removability test -- it also asks whether the item has become an "integral part" of the property through its use or attachment, which tracks the adaptation and intent factors, not just ease of removal; and (4) a later IAAO edition moved to a three-part test that more closely mirrors Danville Holding itself. The Virginia Supreme Court has also continued citing Danville Holding with approval as recently as 2011 and 2014, expressly rejecting the idea that removability alone decides fixture status.

Applying the real test to this park's rides: the rides were annexed to the property in ways that would be costly and difficult to reverse; the county pointed to some ride sales but never investigated what repairs or alterations those sales required; the underlying land itself had likely been permanently altered to support the rides; and an amusement park's whole business model depends on having rides in place to draw customers -- all pointing toward permanent intent. Several rides had been in place for 25 to nearly 50 years. The Department noted that "permanent" doesn't have to mean "forever" -- it can mean "meant to last indefinitely," accounting for equipment that eventually becomes obsolete or gets replaced without losing its fixture status at the time it was installed. Following its own recent ruling on amusement park attractions (P.D. 21-80, which found ride structures, ride equipment, theming equipment, and lockers to be fixtures), the Department held the same result applies here: the disputed ride assets are real-property fixtures, not BTPP, and the county must refund the tax paid on them.

Issue 2: was the taxpayer's over-reporting of disposed assets "willful," barring a refund?

Separately, the park had been overpaying BTPP tax for years because of a bookkeeping mismatch dating to a 2009 change in ownership: the county's asset list (created by the PRIOR owner) recorded assets at their original cost, but the new owner had been instructed to report only its own acquisitions and dispositions -- so when it later disposed of an asset, it reported the disposal using ITS OWN (lower) acquisition cost, leaving the cost DIFFERENCE stuck on the county's books as if the asset were still owned and still taxable. Once the taxpayer discovered the discrepancy in 2020, it sought refunds for 2017-2020; the county fixed the issue going forward but denied the refund for those earlier years, calling the taxpayer's conduct "willful" under an older circuit court case (ITT Teves) that denied a refund to a taxpayer who kept repeating the same reporting error even after the county had specifically flagged it before.

The Department found no evidence of willfulness here. Under Virginia law, "willful" means an intentional, knowing act done without justifiable excuse or with a bad purpose -- a much higher bar than ordinary carelessness. Unlike the ITT Teves taxpayer, there was no evidence this park had ever been warned about the cost-basis mismatch and kept repeating it anyway; the Department also noted that confusion over whether original cost or a subsequent buyer's acquisition cost should be the BTPP tax base has caused genuine confusion in other cases too, undercutting any inference of bad faith. A mere failure to report perfectly might show negligence, but that's not enough to meet the "willful" standard that would forfeit the refund.

What happens next. The county must review the taxpayer's documentation of its asset disposals on the merits (not reject it for "willfulness"), request any additional documentation it needs (giving the taxpayer 60 days to respond, absent a different mutual deadline), and then issue a new, appealable final determination correcting the BTPP tax for the years at issue to the extent the disposals are properly substantiated.

What this means for you

Amusement parks, and any business with large fixed equipment installations

Whether your equipment is a taxable BTPP asset or an exempt real-property fixture doesn't turn on whether it COULD physically be removed -- it turns on annexation, adaptation to the property's use, and (most importantly) whether you intended it as a permanent addition when installed. Long operational lifespans, costly-to-reverse installation, and a business model that depends on the equipment staying in place all support fixture treatment.

Businesses facing a locality that cites IAAO appraisal-industry standards to argue for personal-property classification

Push back if the locality treats an IAAO removability definition as an exclusive test -- Virginia case law (Danville Holding, reaffirmed as recently as 2011 and 2014) controls fixture classification, and even the IAAO's own more recent standards align with that multi-factor approach rather than a pure removability rule.

Businesses that changed ownership and inherited a locality's outdated asset list

Reconcile your reported acquisition costs against the locality's own recorded original costs as soon as possible after a purchase. A mismatch here caused years of overpayment before it was caught -- and while a genuine accounting mismatch alone won't forfeit your refund rights, catching it early avoids the dispute altogether.

Anyone told their refund is barred because their reporting error was "willful"

"Willful" is a high legal bar -- it requires actual intentional or bad-faith conduct, not just an honest mistake, and is much harder to prove if you weren't previously warned about the exact same error and didn't keep repeating it anyway.

Common questions

Q: How does Virginia decide whether equipment I installed is a taxable personal-property asset or an exempt real-property fixture?
A: Using the three-prong test from Danville Holding Corp. v. Clement (1941): how the item is annexed to the property, how adapted it is to the property's use, and -- most importantly -- your intent when you installed it. Whether the item CAN be physically removed is not, by itself, the test.

Q: My county says a modern appraisal-industry standard requires classifying my equipment based on removability alone -- is that right?
A: Not according to this ruling. The Department held that a 2010 valuation-appeals statute doesn't override the Danville Holding standard, that appraisal standards are only "such as" IAAO's (not exclusively IAAO's), and that even IAAO's own glossary looks beyond simple removability.

Q: My business changed hands and I've been reporting disposed-asset costs using my own purchase price rather than the locality's older recorded cost -- could that create a refund problem?
A: Yes -- as in this case, a cost-basis mismatch after an ownership change can cause you to keep paying tax on assets you no longer own. Reconcile your reporting against the locality's own asset records as early as possible.

Q: Can a locality deny my refund by calling my reporting error "willful"?
A: Only if it can show actual intentional or bad-faith conduct -- not just an honest accounting mistake. If you weren't previously warned about the specific error and didn't keep repeating it after a warning, "willful" is a hard standard for the locality to meet.

Citations and references

Constitution and statutes:

• Va. Const. Art. X, § 4 -- real property and tangible personal property (except certain rolling stock) reserved for local taxation
• Va. Code § 58.1-3200 et seq. and § 58.1-3500 et seq. -- real property and tangible personal property taxation, respectively
• Va. Code § 58.1-3379 B -- real property valuation appeals before a Board of Equalization; nationally recognized appraisal standards
• Va. Code § 58.1-3109 6 -- local commissioner's authority to require records for an accurate BTPP assessment
• Va. Code § 58.1-3983.1 B 4 -- taxpayer bears the burden to prove correct BTPP reporting
• Va. Code § 58.1-3987 -- refund denial for willful failure to make a proper return
• Va. Code § 58.1-3983.1 and § 58.1-3984 -- further appeal rights after a revised local determination

Case law:

• Danville Holding Corp. v. Clement, 178 Va. 223 (1941) -- the three-prong fixture test (annexation, adaptation, intent), with intent as the paramount factor
• Taco Bell v. Commonwealth Transportation Comm'r, 282 Va. 127 (2011) -- reaffirms Danville Holding; removability alone doesn't decide fixture status
• Ferguson v. Stokes, 287 Va. 446 (2014) -- reaffirms Danville Holding
• ITT Teves America Automotive et al. v. Culpeper County Board of Supervisors, 45 Va. Cir. 39 (1997) -- refund barred where a taxpayer willfully, repeatedly overreported after being warned (distinguished here)
• Commonwealth v. Duncan, 267 Va. 377 (2004) -- defines "willful" as intentional, knowing conduct without justifiable excuse or with bad purpose

Prior Department rulings relied on (described here, not linked): P.D. 96-121, P.D. 06-106, P.D. 10-232, P.D. 14-182, P.D. 16-54, and P.D. 21-80 (applying the Danville Holding fixture test consistently, with P.D. 21-80 specifically finding amusement park ride structures, ride equipment, theming equipment, and lockers to be fixtures); P.D. 11-54, P.D. 12-160, and P.D. 22-29 (taxpayer's burden to substantiate BTPP reporting); P.D. 21-107 (similar cost-basis confusion after a change of ownership). This corpus's already-enriched P.D. 24-110 also cites Danville Holding, but only in passing to note its general fixture tests don't apply where a lease agreement's own specific terms control instead -- this ruling is the fuller application of the three-prong test itself.

Source

• Landing page: Virginia Laws, Rules & Decisions
• Ruling: P.D. 24-91

Original ruling text

September 24, 2024

Re: Appeal of Final Local Determination

Business Tangible Personal Property Tax

Dear *:

This final state determination is issued upon the application for correction filed on behalf of * and (collectively, 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 BTPP tax is imposed and administered by local officials. Virginia Code § 58.1-3983.1 D authorizes the Department to issue determinations on taxpayer appeals of BTPP tax assessments. On appeal, a BTPP 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 online at www.tax.virginia.gov in the Laws, Rules, and Decisions section of the Department’s website.

FACTS

The Taxpayer operated a themed amusement park in the County (the “Park”). The Taxpayer submitted a refund request to the County for BTPP tax paid, contending that certain items of property that had been the subject of previous BTPP tax assessments were in fact fixtures to realty and thus not subject to the tax. The Taxpayer also requested a refund based on assets that had inadvertently not been removed, or were removed at an incorrect cost, from the Taxpayer’s asset list. In response, the County denied the refunds.

The Taxpayer filed an appeal with the County. In its final determination, the County concluded that the categories of assets the Taxpayer claimed to be fixtures were properly subject to the BTPP tax. The County also concluded that the Taxpayer was not eligible for a refund of tax paid on disposed assets, reasoning that it had willfully failed to supply correct information as to what assets remained in its possession. The Taxpayer filed an administrative appeal with the Department, contesting each of the County’s conclusions.

ANALYSIS

Real Property v Tangible Property

Legal Standard

Real property and all tangible personal property except the rolling stock of public service corporations and that which is declared intangible under the provisions of Virginia Code § 58.1-1100 et seq ., is reserved for local taxation by Article X, § 4 of the Constitution of Virginia . The method of taxation of real property is provided under Virginia Code § 58.1-3200 et seq ., whereas the taxation of tangible personal property is provided under Virginia Code § 58.1-3500 et seq . On those occasions when an item of tangible personal property is determined to be a fixture, it is treated as real property for purposes of local taxation. Fixtures are presumed to be annexed to the realty in some form.

In Danville Holding Corp. v. Clement , 178 Va. 223, 232 (1941), the Virginia Supreme Court (the “Court”) set forth three general rules to be used in determining whether an article of tangible personal property is a fixture, and thus considered a part of the real estate for purposes of taxation or remains personal property subject to taxation as BTPP. The three tests are: (1) the annexation of the chattel (property) to the realty, actual or constructive; (2) its adaptation to the use or purpose to which that part of the realty to which it is connected is appropriated; and (3) the intention of the parties, i.e., the intention of the owner of the chattel to make it a permanent addition to the freehold.

In its decision, the Court noted that the “intention of the party making the annexation is the paramount and controlling consideration.” Id. The Department’s long-standing policy has been to apply this three-prong standard to determine whether property should be classified as a fixture. See, e.g. , Public Document (P.D.) 96-121 (6/7/1996), P.D. 06-106 (10/5/2006), P.D. 10-232 (9/29/2010), P.D. 14-182 (11/25/2014), P.D. 16-54 (4/11/2016), and P.D. 21-80 (7/6/2021).

The County’s Proposed Standard

The County argues that Virginia Code § 58.1-3379 B requires the Department to conform the definition of fixtures for BTPP purposes to the definition of real property as interpreted by the International Association of Assessing Officers (the “IAAO”). That section, amended by the General Assembly in 2010, addresses the valuation of real property by Boards of Equalization, not the classification of specific items of property for purposes of local personal property taxation. Specifically, the statute provides that in contesting a real property assessment a taxpayer must show, among other things, that the assessment was not made in accordance with generally accepted procedures, rules, and standards as prescribed by nationally recognized professional appraisal organizations such as the IAAO.

In its final determination, the County cites terms from the IAAO Glossary for Property Appraisal and Assessment (2d ed. 2013) (the “IAAO Second Edition”) to argue that annexation of personal property to the realty has become a much more important standard in determining the nature of the property and its classification for taxation. The IAAO Second Edition defines fixture, in part, as an “[a]ttached improvement . . . . If attached to realty in such a manner that its removal would damage the real property or the fixture, the fixture is realty.” The County then asserts that, based on this definition, “[c]urrent appraisal standards require that property be permanently annexed to the realty in such a manner that removal would cause harm to either the property in question or the underlying realty.” In applying its standard based on the IAAO Second Edition definition, the County concludes that “amusement devices are demonstrably removable and are, in fact, routinely removable for the secondary market or for scrap. For this reason, amusement devices are correctly classified as personal property.” The County’s interpretation of this standard, however, is in direct contradiction to Danville Holding and the Department’s prior determinations.

In Danville Holding , the Court concluded “ the method or extent of the annexation carries little weight , except insofar as they relate to the nature of the article, the use to which it is applied and other attending circumstances as indicating the intention of the party making the annexation.” 178 Va. at 232 (emphasis added). In other words, so long as chattel is attached to a building to carry out the purpose for which such building was erected and to increase its value for occupation or use, such chattel may become part of the realty even if it may be removed without injury to itself or the building.

Regardless of the fact that the County’s interpretation is not supported by Virginia case law precedent or the Department’s prior determinations, it is unclear whether the definition cited by the County even creates the standard the County claims. Although the statute mentions the IAAO by name, it also refers to “nationally recognized professional appraisal organizations such as the [IAAO].” [Emphasis added]. The use of the phrase “such as” implies that IAAO definitions are not exclusively controlling. Moreover, even if the intent was solely to use IAAO definitions, the IAAO’s own definition of fixtures does not create an exclusive test tied to whether the method of annexation would cause damage upon the property’s removal. The IAAO Second Edition’s definition of “fixture” cited by the County further states that “[i]f the fixture is removable without damage, it is generally considered personal property.” [Emphasis added]. The use of the word “generally” leaves room for circumstances in which a piece of personal property may be considered a fixture even if it can be removed without damage to it or the realty.

Further, the Department disagrees with the interpretation that the IAAO definition establishes a standard based exclusively on the method of annexation. While the first part of the IAAO Second Edition definition looks at attachment, the definition also includes elements of the standards espoused by the Court in Danville Holding . Part two of the IAAO Second Edition definition focuses on adaptation by providing that a fixture is also “[a]n item of equipment, that, because of the way it is used, the way it is attached, or both, has become an integral part of a building or other improvement.” The manner of the attachment and the extent of the adaptation can also be indicators of intent. Erecting a ride on a piece of property that requires cement and other heavy construction materials could indicate an intent for the ride to be in place for a long time, whether it actually is or not. Consequently, in the Department’s opinion, the IAAO Second Edition definition of fixture supports the analysis of the Court in Danville Holding rather than establishes an entirely different standard.

In fact, the IAAO itself states that in the event of “conflict with national, state, or provincial laws, such laws shall govern.” See IAAO Guide to Assessment Standards title page (2022). Further, the IAAO definition of fixture has changed over time. As noted above, the definition cited by the County is from the IAAO Second Edition. In a subsequent edition, the IAAO changed the two part definition to a three part standard that more closely mirrors the Danville Holding test. See IAAO, Glossary for Property Appraisal and Assessment (3d ed. 2021). The tests include the extent of annexation to the real property, the extent to which the article is a logical contribution to and enhancement of the real property, and the intent of the parties.

The County also takes issue with the ongoing relevance of Danville Holding considering the age of the case and the County’s belief that its own standard is more supported by modern statutory developments. In the Department’s opinion, however, this belief is misplaced. Although Danville Holding was decided in 1941, the Court continues to cite it with approval in more recent fixture cases. In Taco Bell v. Commonwealth Transportation Comm’r , 282 Va. 127 (2011), the Court acknowledged that although the evidence showed that all of the property in question was moveable, “whether an item can be removed from the realty is not the test for establishing whether or not it is a fixture.” Id . at 132. In reaffirming the use of the three-part Danville Holding standard, the Court found that the appellant had established sufficient facts as to the adaptation and intent prongs of the analysis to have submitted the case to the jury to decide whether the disputed items of restaurant equipment were fixtures. The Court has also cited the Danville Holding standard again as recently as Ferguson v. Stokes , 287 Va. 446 (2014).

The County, on the other hand, does not cite any Virginia case law indicating the standard of Danville Holding has been superseded by legislation or otherwise. In the absence of supporting legal authority to the contrary, the Department will continue to apply the standard of Danville Holding in fixture cases. The administration of the Commonwealth’s tax laws cannot be accomplished by picking and choosing competing standards. Taxpayers deserve a measure of certainty that can be provided by applying a consistent legal standard as the Department has done in applying the three-prong standard developed by the Court.

Application to Facts

While arguing for a new standard for distinguishing tangible from real property, the County’s determination still addresses the three-prong standard of Danville Holding , claiming that “it is imperative that both sets of criteria be examined and substantial weight be given to the current methodology [i.e., the IAAO definition] prescribed by the General Assembly.” The Department has recently ruled on the issue of amusement park attractions. See P.D. 21-80. In that case, the Department determined that the theme park’s ride structures, ride equipment, theming equipment, and lockers were fixtures. The facts of this case raise the same fundamental issues, and do not appear to be such that a different result would be warranted.

Annexation

Annexation of chattel must be actual or constructive. In Danville Holding , the Court concluded “the method or extent of the annexation carries little weight, except insofar as they relate to the nature of the article, the use to which it is applied and other attending circumstances as indicating the intention of the party making the annexation.” 178 Va. at 232. In other words, so long as chattel is attached to a building to carry out the purpose for which such building was erected and to increase its value for occupation or use, such chattel may become part of the realty even if it may be removed without injury to itself or the building.

Adaptation

If attached property is essential to the purposes for which the building (or realty) is used or occupied, it would generally be considered a fixture even if its annexation to such building is such that it may be severed without injury to either the chattel or the building.

Intention

The Court has emphasized that the intention of the party making the annexation is the chief test to be considered in determining whether the chattel has been converted into a fixture. Although the intention does not need to be expressed in words, it should be able to be inferred from the nature of the property annexed, the purpose for which it was annexed, the relationship of the party making the annexation, and the structure and mode of annexation.

The test for fixture status looks to the intent at the time the property is affixed to the realty. The fact that later events or changing circumstances result in the property’s severance from the realty does not change the proprietor’s intent at the time of installation. In addition, a doubt as to intent is usually resolved in favor of a finding of permanent intent, when it is the proprietor of the land who annexed the property. As the Court stated in Danville Holding :

If the proprietor of the land himself annexes the chattels, a doubt as to his intention to annex them permanently will in most cases be resolved in favor of such intent, upon the theory that his design is to place permanent improvements upon his property, which will enhance its usefulness and consequently its market value. Such fixtures are in general real fixtures and become a permanent part of the land or buildings to which they are attached.

Id. at 232-33 (quoting 1 Minor on Real Property, Ribble (2d Ed.), section 36).

The Department will not go as far to say that, categorically, all amusement park rides should be considered fixtures. In fact, because the test to determine whether an item of property is a fixture is a three-pronged standard based on the facts and circumstances pertinent to that specific item of property, the Department cannot say that any particular category of property is a fixture in all cases. Undoubtedly, almost all property, whether it is household items that are commonly treated as fixtures in a typical real estate transaction, the industrial baking equipment at issue in Danville Holding , or amusement park rides, have useful lives that are something less than permanent in the most extreme sense of the word. Although it is also certainly possible that property in these categories can in some cases be removed without significant damage to it or the realty, the uncertainty surrounding these considerations is exactly why the Danville Holding standard is useful. The issue is not just decided on annexation. The issue is not just decided on adaptation. While intent is the primary consideration, that factor still has to be examined in the relation to the other factors. This multi-factor analysis grants the decision maker more flexibility to examine the issue under different factual contexts, which is necessary in a complex and ever-evolving world.

Returning to the specific question as to what constitutes permanent intent, while permanent can mean “fixed and changeless,” it can also mean “lasting or meant to last indefinitely.” See American Heritage Dictionary 924 (2d Col. Ed. 1985). For example, the definition entry provides the example of “permanent address.” An individual may have lived at many “permanent addresses” in their lifetime and the fact that they moved or may move does not change the fact that they had prior permanent addresses.

The types of property at issue in this case can be, and are, bought and sold and replaced. In fact, the County points to the sale of specific ride assets to support its determination. The County did not, however, conduct an investigation to determine what, if any, significant repairs or alterations were required in order to make them usable. In addition, the underlying real estate likely could not be returned to its original state prior to annexation because the land had been altered specifically for the ride.

Most, if not all, of the rides at issue were annexed to the realty in such a way that they could not be removed from the park except at a significant cost. If the risk of damage is a consideration at all, it is difficult to believe that the rides could be deconstructed and removed without needing some measure of repair or refurbishing to make them operational at another location. At a minimum, it would likely take significant work to restore the underlying realty to its original state or re-adapt it for a different purpose. As for adaptation, customers pay to come to the park in part for the unique experience the rides offer. An amusement park must have amusements.

These observations as to the first two factors color the question of intent. An amusement park installs rides to increase the value of the park as an attraction to customers. It often installs them in such a way that would make them difficult and costly to remove. Provided that they continue to function well and customers continue to enjoy them, a park operator would have little reason to remove them in light of these factors. Thus, permanent intent can be strongly implied from the circumstances.

Further, while no bright-line rule exists for how long an item of property should remain annexed to the realty to be considered a fixture, a number of rides in the park have been operational for more than twenty-five years, including one for nearly fifty. If the test of permanence is one that requires property to stay fastened to that same spot forever, it is a standard that would be practically impossible to meet regardless of the circumstances. The Court in Danville Holding , for example, could not have possibly expected the bakery equipment in that case to stay fastened to the same spot for centuries. It was sufficient that the equipment was “permanent in its character” and that the owner intended for it to stay. 178 Va. at 236. The Department believes that in order for the standard to be administrable, it should be implied that permanence must account for equipment that no longer functions, has become obsolete, or otherwise does not meet the business needs for which it was originally installed, simply given the nature of how circumstances evolve over time. Again, if some concessions were not made for these considerations, the test of intent would be practically impossible to meet no matter the facts and circumstances.

Disposed Assets

Willful Failure to Provide Information

The Taxpayer purchased the Park from its previous owners in 2009 and recorded the purchased assets on its books based on the purchase price paid to the previous owner. The County maintained an asset list that had been created and updated by the Park’s previous owner. According to the Taxpayer, it was instructed by the County to report only acquisitions and dispositions of assets during the year on its annual BTPP tax returns. The asset dispositions were reported based on the Taxpayer’s acquisition cost, rather than at the original cost of the asset as recorded in the County’s asset list.

This resulted in overpayment of BTPP tax because an asset’s original cost in the County’s list generally exceeded the Taxpayer’s acquisition cost that it reported to the County. For example, suppose the County’s asset list contained an icemaker with an original cost of $1,000 reported by the previous owner. When the Taxpayer later disposed of the asset, it reported the disposition of an asset with an original cost of $400 because that was the cost allocated to the asset when acquired by the Taxpayer. This would result in $600 of asset cost continuing to be taxed by the County on an asset that was no longer owned by the Taxpayer. The Taxpayer also identified other assets that had been disposed of where the disposition had not been reported to the County by either the Taxpayer or the previous owner.

When the Taxpayer became aware of these discrepancies in 2020, it requested refunds of overpaid BTPP taxes for the 2017 through 2020 tax years. The County agreed to adjust the asset list for the 2021 tax year and onward. The County, however, denied the refund for the prior years. The County cited the case of ITT Teves America Automotive et al. v. Culpeper County Board of Supervisors , 45 Va. Cir. 39 (1997), and appears to have based its denial on the belief that the Taxpayer willfully failed to make proper returns of BTPP tax. The County also stated that the Taxpayer did not provide contemporaneous evidence to support the asset disposal dates.

In ITT Teves , the Circuit Court of Culpeper County found that a taxpayer that engaged in poor accounting practices was not entitled to a refund when such taxpayer willfully overreported the amount on which the assessment was based. The evidence showed that the issue of overreporting had been brought to the attention of the taxpayer by the locality during a previous examination in which relief was granted. The taxpayer continued to overreport the same items of equipment on its returns. The court decided that the taxpayer had willfully failed to provide the locality with “the necessary information on their annual returns as required by law,” and therefore was not entitled to a refund pursuant to Virginia Code § 58.1-3987. Id. at 42.

The Court has found that the term willful refers to conduct that “must be knowing or intentional, rather than accidental, and be done without justifiable excuse, without ground for believing the conduct is lawful, or with a bad purpose. . . . Thus, the term ‘willful’ . . . contemplates an intentional, purposeful act or omission.” Commonwealth v. Duncan , 267 Va. 377, 384-385 (2004) (internal citations omitted).

The legal standard of willfulness requires a demonstrated intent to engage in conduct knowing that it is not lawful, or with a bad purpose. No specific evidence has been provided in this case that would indicate that the Taxpayer willfully underreported the cost of property on its BTPP tax returns. The mere failure to complete a tax return properly may be evidence of negligence, but because willfulness is a significantly higher legal standard, more evidence must be shown. In ITT Teves , for instance, the locality had specifically brought errors to the attention of the taxpayer in a prior examination in which relief had been granted. Nevertheless, the taxpayer continued to commit the same errors.

The Department also observes that the issue of whether the cost to the original purchaser or the acquisition cost by a subsequent buyer forms the base for the BTPP tax has caused confusion in BTPP cases, casting further doubt on the County’s allegation of willful conduct. In P.D. 21-107 (8/10/2021), for example, the business indicated that that when it became aware of the discrepancies it requested a copy of the locality’s asset list and began the process of correcting the issues. Therefore, I do not find sufficient evidence for the County’s position that the Taxpayer willfully reported incorrect asset cost when reporting its dispositions.

Evidence of Disposals

Under the provisions of Virginia Code § 58.1-3109 6, the local commissioner of the revenue is empowered with the authority to require records and other information necessary to make an accurate assessment of a person’s tangible personal property. It is incumbent upon the taxpayer to prove to the satisfaction of the local taxing authority that it properly reported the value of its property on its BTPP returns. See Virginia Code § 58.1-3983.1 B 4. See also P.D. 11-54 (4/7/2011), P.D. 12-160 (10/12/2012), and P.D. 22-29 (2/15/2022).

The County’s final determination primarily denied the refunds for any asset disposals on the basis that the Taxpayer had willfully failed to provide the County with necessary information as required by law. The County, however, also stated that the Taxpayer failed to produce sufficient contemporaneous evidence to support the disposals.

DETERMINATION

Pursuant to the precedent established by the Supreme Court of Virginia and this Department, the categories of assets the Taxpayer claimed to be fixtures should be considered as such and thus are not subject to the BTPP tax. The County is directed to issue refunds consistent with this conclusion.

In addition, for any assets that are not already removed from the taxable list as fixtures, the County must consider the documentation provided by the Taxpayer regarding disposals. To the extent that the County determines that the Taxpayer provided sufficient information to determine the identity of the asset, the date of disposition, and the original asset cost on which BTPP tax was based, the County must correct the resulting BTPP tax for the tax years at issue. If the County determines that it needs additional documentation, it must request the specific documentation required and allow the Taxpayer 60 days to provide it, unless the Taxpayer and the County mutually agree to a different deadline. Once the Taxpayer has submitted the information and the County has had the opportunity to review it, the County must issue a revised final determination. If the Taxpayer disagrees with the results of that determination, it will have a right to appeal under Virginia Code § 58.1-3983.1 or § 58.1-3984.

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

Sincerely,

Kristin L. Collins

Deputy Tax Commissioner

Commonwealth of Virginia

AR/4743.X

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