In a request for an opinion of the Attorney General of Virginia, local governments might have given a preview of what they will try to do in the upcoming 2022 session of the Virginia General Assembly. The Commissioner of the Revenue and the Treasurer for York County requested an opinion on whether interest should be paid by a locality for (1) the filing of a corrected return by a taxpayer to re-classify property originally reported by the taxpayer as business personal property to real property, when such corrected return is ultimately accepted by the Commissioner of Revenue on appeal; (2) the filing of a business license return and payment of tax to the wrong locality, or a tax payment directed to the incorrect account; and, (3) a “statutory assessment” issued as a result of the taxpayer’s failure to file a business tax return, which assessment is subsequently corrected upon either audit by the Commissioner of Revenue or the taxpayer’s late filing of a return. The Attorney General opined (Op. Va. Att'y Gen. 21-052 (July 16, 2021)) that per Code of Virginia § 58.1-3916 interest should be paid on all erroneous assessments of local taxes. To achieve the result desired by York County, words would have to be read into the statute. The Attorney General said that the rules of statutory construction prohibit this.
Have we been down this road before? Why yes, we certainly have! In 2013, there were no less than five bills (House Bill 1329, House Bill 1534, House Bill 1578, Senate Bill 710, and Senate Bill 937) introduced in the General Assembly with the purpose of limiting the payment of interest to errors by the locality. After some consolidation, not one of these bills received an affirmative vote. The opinion request seems to be a rekindling of this issue by York County and that could lead to more introduced legislation in the 2022 General Assembly. This effort is a pure revenue grab by local governments. First, what is interest? It is compensation for the use of the money (i.e., time value of money). It is NOT a penalty or revenue raiser. Why would any locality not compensate taxpayers for the use of their money? Unfortunately, many localities have set their rate of interest at 10% which is well above the current interest rates. So for these localities, having a high rate of interest is a revenue raiser. What better way to further raise revenue by limiting the interest that must be paid? Second, most local taxes (business, professional, and occupational license tax, tangible personal property tax, meals tax, etc.) are based on taxpayer filed returns. An interpretation that was desired would effectively mean that local governments would only pay interest on erroneous assessments of real property taxes. Now that the Attorney General has made it clear that the statutory language must provide for this limitation, businesses should beware of the return of the substance of the 2013 legislation.
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.