State and Local Taxation

2021 Virginia Department of Taxation Rulings (Part 1)

2021 Virginia Department…

During 2021, the Virginia Department of Taxation has released many rulings and appeal decisions. As usual, most of what is posted is not terribly notable. However, I have already written about one release that is notable here. As for the rest that have been published, here are some of the more important releases:

  • Audit cooperation is an issue that I see in many appeal decisions. A 2021 example is Public Document 21-20. The taxpayers did not provide any of the requested information in the audit. They appealed and the case was sent back to audit. As this was the best outcome these this taxpayer could have hoped for, not responding to questions from the auditor NEVER works out for the taxpayer. This taxpayer was lucky that the assessment was not upheld.
  • The length of time that the Virginia Department of Taxation takes to respond to rulings and appeals is always a valid question. Even when I tell clients an average time that responses take, the pandemic has thrown a wild card into that estimate that I cannot account for. A recent ruling, Public Document 21-84, shows what might be an extreme example. The issue in this ruling was a question on the taxpayers’ 2014 income tax return. The income tax return was filed on time (in 2015) and an assessment was issued. Add three years to issue an assessment plus the 90-day appeal deadline then we can assume that the appeal was filed in 2018. The response was not issued until 2021. No response should ever take this long.
  • There is nothing new in Public Document 21-92, but it is a teachable point for all businesses. When it comes to sales tax, the tax is always form over substance and all nontaxable charges should be separately stated. Of course there could be other issues in different situations, however these are two universal rules of thumb.
  • Local tangible personal property tax was being appealed in Public Document 21-80. The issue was whether certain property should be classified as real property or tangible personal property. Virginia law on this subject has been set since at least 1941. Despite this, the locality here ignored this long-standing precedent and assessed tangible personal property tax on the subject property. The locality clearly thought it should be able to tax the property. The fact that the locality did not have the authority to do so but tried anyway is troubling.

Christian Tennant is a Virginia tax attorney and former employee of the Virginia Department of Taxation. Mr. Tennant regularly speaks and writes on Virginia taxation. In his private practice he advises and represents businesses and individuals on a range of tax matters.

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