What is being cited here is an issue that has been around for over four years but has not been officially acknowledged. In Verizon Online LLC v. Horbal, 293 Va. 176, 186 (2017), the Supreme Court of Virginia addressed judicial reviews of tax appeals of local business taxes and local mobile property taxes initiated under § 58.1-3983.1 and stated, “the circuit court acts in the role of an appellate court.” In coming to this conclusion, the Court interpreted § 58.1-3983.1(G) which states in pertinent part
In any such proceeding for judicial review of a determination of the Tax Commissioner, the burden shall be on the party challenging the determination of the Tax Commissioner, or any part thereof, to show that the ruling of the Tax Commissioner is erroneous with respect to the part challenged.
Importantly, the identical language used in the same context is present in § 58.1-3703.1(A)(7)(a) which provides for local tax appeals of license taxes. Based on that, it is logical that the circuit court should act in the role of an appellate court on judicial reviews of local tax appeals of license taxes as well as local business taxes and local mobile property taxes.
With this ruling and since this judicial review comes after a determination from the state Tax Commissioner, shouldn’t the Virginia Department of Taxation have issued some sort of instructions or other pronouncement? Since the circuit court acts in the role of an appellate court, what are the rules of evidence for these appeals filed with the Virginia Department of Taxation? Does the Virginia Department of Taxation accept oral testimony/evidence? Will a record be created and communicated to the circuit court? These and many more legitimate questions needed to be addressed in 2017. Furthermore, there is probably not a need for the Virginia Department of Taxation to have created rules. As the Supreme Court of Virginia noted, other government agencies that issue decisions under the Virginia Administrative Process Act have their decisions reviewed by the circuit court which acts in the role of an appellate court. With all of these questions outstanding and the possibility that other government agencies handle this type of review, has there been an official statement of any sort from the Virginia Department of Taxation? No. The Virginia Department of Taxation has not officially acknowledged Verizon Online LLC v. Horbal. Based on the rulings issued, it seems that there was no change from how they operated before this case.
So when a determination from the state Tax Commissioner of a local tax is issued, circuit courts should only engage in an appellate review of that decision and not necessarily take evidence upon the challenge of that determination. What happens when a local tax is properly appealed to the state Tax Commissioner and the evidence proffered (for which there are no rules) is not communicated to the circuit court? How can an appellate review occur? I sincerely wish I could answer all of the questions that are raised. However, none of the questions can be answered until the Virginia Department of Taxation addresses the 2017 opinion.
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.