HD38 - The Statutes of Limitations for Contesting Local Property Tax Assessments and for Collecting Local Taxes


Executive Summary:
1994 House Joint Resolution 257 directed the Department of Taxation (TAX), in cooperation with the Commissioners of Revenue and Treasurers' Associations, to study the statutes of limitations for contesting and collecting local property tax assessments.

To assist in this study, TAX created a working group of local government and business sector representatives. This group included members from the Commissioners of Revenue and Treasurers' Associations, the Virginia Municipal League, the Virginia Association of Counties, the Virginia Chamber of Commerce, and the Virginia Manufacturers Association.

BACKGROUND

Under current law, a locality has three years in which to issue an assessment for omitted taxes -- the three-year period runs from the last day of the tax year for which the assessment is made. For example, tax on omitted property for the tax year 1994 can be assessed by the Commissioner of Revenue up to December 31, 1997.

The same three-year statute also applies in the case of taxpayer appeals, with one modification which was intended to deal with assessments issued near the end of the three-year period. In such cases the taxpayer may file an appeal under the later of the normal three-year statute or one year from the date of assessment.

Current law limits the collection authority of localities to five years from the last day of the tax year for which the assessment is made -- for example, an assessment for tax year 1994 must be collected by December 31, 1999.

CONSENSUS

The working group agreed that the current three-year assessment and appeals statutes and the five-year collection statute are very reasonable, provided that there can be exoneration of erroneous unpaid assessments outside of the normal three-year appeal period.

An example where exoneration is appropriate is the taxpayer who moves from a locality and is issued a tangible personal property tax assessment for a vehicle. The vehicle is outside of the locality's jurisdiction and is thus not taxable; however, the taxpayer may not discover the assessment until returning to the locality several years later, being contacted by a collection agency, or having an income tax refund attached under the setoff debt collection program.

The working group agreed that exoneration in such cases is appropriate, both for reasons of taxpayer equity and to reduce the volume of improper assessments carried on the books of local Treasurers.

On an issue unrelated to exoneration, the working group also agreed that taxpayers and local Commissioners of Revenue need the flexibility to voluntarily extend the statute of limitations for assessments. This authority is currently available for federal and state tax assessments and would reduce the number of instances where a local official must issue an estimated or "jeopardy" assessment simply because the three-year statute for assessment is nearing expiration.

RECOMMENDATIONS

Based upon the working group's discussions and consideration of the possible options, TAX makes the following recommendations regarding the two components of the exoneration issue. Both recommendations will require legislation.

• First, taxpayers who have not received notification of an assessment within the three-year statute for appealing an assessment should be allowed to apply for a correction of an erroneous assessment at any time within the five-year collection period.

• Second, in instances where an erroneous assessment has been involuntarily collected, e.g., through enforcement of liens or the setoff debt collection program, taxpayers should be allowed one year in which to appeal and receive a refund of the erroneously collected tax.

Finally, TAX recommends legislation to allow voluntary extensions of the statute of limitation for assessment, when agreed to by both the taxpayer and local assessing official. This would mirror the current state statute and would also extend appeal and collection rights by the same amount of time that the assessment date is extended.

Draft statutory language to accomplish these recommendations is set out in Appendix B.