07.31.2014 Southeast State & Local Tax: Important Developments - July Update
BY: STEPHANIE LIPINSKI GALLAND & KYLE H. WINGFIELD
The Williams Mullen Southeast State and Local Tax (SESALT) team is pleased to provide you with a comprehensive recap of recent legislation around the U.S.
- 2014 Legislative Summary. The Department of Taxation published its reference guide to state and local tax legislation enacted by the 2014 Session of the General Assembly and Special Session I, including the reconvened session on April 3, 2014 and actions taken as of July 1, 2014. State tax developments include legislation pertaining to interest-charged domestic international sales corporations, clarification of the intangible holding company addback provisions and various tax credits. Local tax developments include legislation pertaining to transient occupancy taxes, real estate taxes, severance taxes and tangible personal property taxes. P.D. 14-97.
- County and Town Tangible Personal Property Tax. The Virginia Attorney General issued an opinion holding that a county and town can concurrently assess tangible personal property taxes on business property located within the boundaries of both governmental entities. The attorney general noted that implicitly counties and towns in Virginia are separately authorized to assess tangible personal property taxes pursuant to Va. Code § 58.1-3511, and, because a town (unlike a city) is not independent of its host county, tangible personal property can be physically located in both a town and a county. Va. Atty Gen. Op. 14-017.
CREDITS AND REFUNDS
- Erroneous Professional Tax Advice. The Department of Taxation denied a claim for refund by two taxpayers who relied on their accountant to timely file their Virginia income tax return. The taxpayers filed their 2006 Virginia income tax return in 2013 and claimed a refund. The Department denied the refund because the return was filed beyond the refund period allowed by Virginia’s statute of limitations. The taxpayers contended that the failure to file resulted from an error by their accountant. On appeal, the Department rejected taxpayers’ argument, finding that a taxpayer’s reliance on an accountant to prepare income tax returns does not relieve the taxpayer of the responsibility for ensuring that the return is timely filed and that the information reported on the return is accurate. P.D. 14-101.
SALES AND USE TAX
- Manufacturing Exemption. The Department of Taxation ruled that a taxpayer, a provider of packaging and shipping services for an international tobacco processor (the “Manufacturer”), did not qualify for the manufacturing exemption to the retail sales and use tax under Va. Code § 58.1-609.3(2). The taxpayer argued that it was part of a vertically integrated manufacturing process with the Manufacturer. The Department ruled that the taxpayer did not qualify for the exemption because (i) it was not a manufacturer or industrial processor and (ii) the packaging and shipping did not occur on the plant site and, therefore, did not qualify as “manufacturing” under Va. Code § 58.1-609.3(2). As the consumer of all materials used in the packaging and shipping services, the Department ruled that the taxpayer was liable for sales tax on its purchases of materials used in providing the packaging and shipping services. P.D. 14-103.
Property – Untimely Appeal. The North Carolina Court of Appeals affirmed the North Carolina Property Tax Commission's dismissal of the taxpayer's revaluation appeal because the taxpayer's original request to the Guilford County Board of Equalization and Review (the “Guilford County Board”) for a hearing was untimely. The taxpayer contended that statutory law permitted it to submit its appeal to the Guilford County Board at any time prior to the Board's adjournment for the year. The court concluded that the legislature intended for a local board of equalization and review to have the authority to set a reasonable deadline prior to its adjournment for accepting requests for revaluation appeals and that such time is the time prescribed by law. The Guilford County Board set July 2, 2012 as the deadline for appeal requests for 2012. As the taxpayer did not submit its hearing request by that date, the taxpayer did not timely request an appeal of the revaluation of its properties for the tax year 2012. In the Matter of Appeal of: Dixie Building, LLC, N.C. Ct. App., Dkt. No. COA13-1170 (July 15, 2014).
- Rental Property – Revaluation. The North Carolina Court of Appeals reversed a final decision of the North Carolina Property Tax Commission because the taxpayer produced competent, material, and substantial evidence tending to show that the assessor's valuation was arbitrary or illegal and substantially exceeded the true value of the property. The taxpayer owned rental community comprised of 121 adjacent tax parcels: 120 were residential lots with a detached single-family residence; and the remaining lot was improved with a clubhouse and amenities for tenants. The assessor determined the value of each parcel separately on a cost basis using the county's schedule of values and totaled the values assigned to each parcel to reach the aggregate value. The taxpayer's expert testified that the income approach was the most appropriate valuation approach to employ and was based on the use of property as a rental complex. The court of appeals determined only that the taxpayer produced sufficient evidence to rebut the presumption of correctness afforded ad valorem tax assessments and remanded the case for the Commission to determine the appropriate valuation method. In the Matter of Appeal of: Villas at Peacehaven, LLC, N.C. Ct. App., Dkt. No. COA13-1224 (July 15, 2014).
DISTRICT OF COLUMBIA
- Sales and Use Tax – Sales in Federal Buildings. The Mayor signed the Fiscal Year 2015 Budget Request Act of 2014 (the “Act”), which will be sent to Congress for review. Under the Act, the following sales will be subject to DC sales and use tax: (1) sales at gift shops, souvenir shops, kiosks, convenience stores, food shops, cafeterias, restaurants and similar establishments in federal buildings, including memorials and museums, in DC that make sales to: (a) the general public, whether operated by the federal government, an agent of the federal government, or a contractor, and (b) other than the general public, if operated by an agent of the federal government or a contractor; and (2) sales of goods and services by government-sponsored enterprises and corporations, institutions, and organizations established by federal statute or regulation (collectively, “Federal Enterprises and Organizations”), including the Smithsonian Institution, National Gallery of Art, National Building Museum, Federal National Mortgage Association, and Federal Home Loan Mortgage Corporation, if the Federal Enterprise or Organization is otherwise exempt from such taxation, to the extent those sales would be subject to the sales and use taxes if the Federal Enterprise or Organization were organized as a nonprofit corporation under the D.C. Nonprofit Corporation Act and exempt from federal income taxation under IRC § 501(c)(3). L. 2014, Act 20-370(effective 30-day period of Congressional review.)
AROUND THE NATION
- Permanent Internet Tax Freedom Act. On June 18, 2014, the House Judiciary Committee approved H.R. 3086 (the Permanent Internet Tax Freedom Act). The Internet Tax Freedom Act (the “IFTA”) prohibits federal, state and local governments from taxing Internet access and from imposing discriminatory taxes on electronic commerce. The IFTA is set to expire on November 1, 2014. If it is enacted, H.R. 3086 would eliminate the expiration date and make the IFTA permanent. The current version of the bill includes a grandfather clause and would allow certain states to tax Internet access if their statutes were in place before the IFTA was enacted in 1998. H.R. 3086, 113th Cong. (2014).