Two Studies of Tax Appeals Underway

June 19, 2019

Two studies of appeals of local taxes are under consideration this summer, both directed by study resolutions enacted by the General Assembly.

Appeals of businesses’ real and tangible personal property assessments
HJ 98 (Byron), which was passed by the General Assembly in 2018, directs the Department of Taxation to review the appeals process for businesses contesting assessments of real and tangible personal property. The resolution specifies particular proposals for the Department to evaluate regarding appeals to the Tax Commissioner of the valuation of machinery and tools, including whether the Tax Commissioner should be more involved in evaluating local valuations of property — for example, by analyzing appraisals submitted by the taxpayer or local Commissioner. The resolution also directs the Department to review whether the taxpayer could determine the value of individual items of property subject to the machinery and tools tax by determining what percentage of the total appraised value of all machinery and tools at a plant is represented by the individual item of property. Although the resolution largely focuses on appeals of machinery and tools assessments, the study resolution contains language gesturing toward a broader reconsideration of the Tax Commissioner’s authority to review local assessments, pointing out that under current statutes, the Tax Commissioner may not make a determination regarding the valuation or the method of valuation of property for any local taxes other than local business taxes. The Department is meeting with stakeholders to gather information and plans to hold a joint meeting with all stakeholders later in the year. A report is due by December 1.

Appeals of real property assessments
In 2018, legislation was introduced by Delegate Keam regarding the judicial standard by which Boards of Equalization and circuit courts review assessments. The bills, which were carried over in the Senate, would have provided that the taxpayer would not have to prove that the assessment was the result of manifest error or disregard of controlling evidence on the part of the assessor. Delegate Keam held a meeting with stakeholders in the fall, at which local representatives reiterated concerns about changing this long-standing aspect of the appeals process. Delegate Keam opted for a different approach in 2019, introducing HJ 687, which, in its initial form, would have requested the Office of the Executive Secretary of the Virginia Supreme Court to study potential options for a tax court system in Virginia. VACo took no position on this version of the resolution; however, it was significantly broadened in the Senate to add a review by a joint legislative subcommittee of streamlining procedures for appealing local tax assessments. As the resolution emerged from conference, the Small Business Commission was tasked with undertaking this broader study.

The Commission held its first meeting to discuss the issue on June 18. After Division of Legislative Services staff provided an overview of recent legislative history on the issue, Deputy City Attorney Adam Melita of the City of Norfolk further explained the appeals process, which includes opportunities for the taxpayer to seek adjustments to an assessment at the administrative level as well as at the local Board of Equalization. Both options are free to the taxpayer and do not require legal counsel. In 2017, of the approximately 3.2 million taxable parcels in the state, 20,777 were the subject of administrative appeals; 10,472 of these appeals were resolved in favor of the taxpayer. At the Board of Equalization level, 4,637 cases were filed, of which 2,341 were resolved in favor of the taxpayer. Eighteen cases were appealed to Circuit Court; the taxpayer prevailed in seven of these cases.

Given the small volume of appeals considered at the Circuit Court level, Commission members expressed some skepticism about the merits of pursuing a stand-alone tax court. It is anticipated that further discussion of the appeals process will take place at a subsequent meeting.

VACo Contact: Katie Boyle

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