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Verizon Online LLC v. Horbal

Supreme Court of Virginia

March 2, 2017

VERIZON ONLINE LLC
v.
JOSEPH A. HORBAL, COMMISSIONEROF THE REVENUE FOR CHESTERFIELD COUNTY JOSEPH A. HORBAL, COMMISSIONEROF THE REVENUE FOR CHESTERFIELD COUNTY
v.
VERIZON ONLINE LLC

         FROM THE CIRCUIT COURT OF CHESTERFIELD COUNTY Timothy J. Hauler, Judge

         PRESENT: All the Justices.

          OPINION

          ELIZABETH A. McCLANAHAN JUSTICE.

         These appeals arise out of a determination by the Tax Commissioner of Virginia that television set top boxes owned by Verizon Online LLC ("Verizon") and used in its cable television business are "intangible personal property" not subject to local taxation under Code § 58.1-1101(A)(2a). The Tax Commissioner directed Chesterfield County to issue refunds to Verizon for local taxes it paid for tax years 2008, 2009, and 2010 on set top boxes it owned. Upon judicial review, the circuit court upheld the Tax Commissioner's determination that Verizon's set top boxes are not subject to local taxation. However, as to the taxes Verizon paid for tax years 2008 and 2009, the circuit court ruled that Verizon was not entitled to refunds for those years due to its failure to file a timely appeal with the local commissioner of revenue.

         We will affirm that part of the circuit court's judgment ruling that Verizon's set top boxes are not subject to local taxation under Code § 58.1-1101(A)(2a). We will reverse that part of the circuit court's judgment ruling that Verizon is not entitled to refunds for tax years 2008 and 2009. As we hold herein, the issue of the timeliness of Verizon's local appeal was not preserved for review by the circuit court.

         I. LOCAL TAXATION OF VERIZON'S SET TOP BOXES

         A. Background

         Verizon leases television set top boxes, also referred to as "converters, " to customers in Chesterfield County for use in the cable television business.[1] A set top box "converts a digital television signal to analog for viewing on a conventional set" or "enables cable or satellite television to be viewed." Verizon's set top boxes are used to deliver a cable service called "FiOS."

         For tax years 2008, 2009, and 2010, Joseph A. Horbal, Commissioner of Revenue for Chesterfield County ("Horbal"), assessed local property taxes upon Verizon's set top boxes based on Verizon's annual reports of business personal property for those years. Subsequently, Verizon filed a local appeal with Horbal asserting that it had erroneously classified its set top boxes as ordinary tangible property on its returns for tax years 2008, 2009, and 2010. Verizon argued that the set top boxes should instead be classified as "intangible personal property" under Code § 58.1-1101(A)(2a) and requested a refund of $1, 003, 657.[2] Horbal denied Verizon's appeal, stating that the set top boxes were "machinery" subject to local taxation.[3]

         Verizon appealed the determination of Horbal to the Tax Commissioner pursuant to Code § 58.1-3983.1(D).[4] Following a response filed by Chesterfield County, the Tax Commissioner determined that the converters were classified as "intangible personal property" under Code § 58.1-1101(A)(2a) and, thus, not taxable by the County. The Tax Commissioner remanded the case to the County "to issue refunds for the 2008 through 2010 tax years in accordance with [the Tax Commissioner's] determination."

         Horbal filed an application for judicial review of the determination of the Tax Commissioner in the circuit court pursuant to Code §§ 58.1-3983.1(G), -3984.[5] Horbal asserted that the Tax Commissioner's determination was erroneous because the set top boxes were subject to local taxation as "machines" under Code § 58.1-1101(A)(2a). The circuit court granted Verizon's motion for summary judgment, ruling that the set top boxes are "intangible personal property" not subject to local taxation under Code § 58.1-1101(A)(2a).[6] In reaching its decision, the circuit court found the statutory language contained in Code § 58.1-1101(A)(2a) ambiguous and considered "various amendments to the relevant statutes" to conclude that "it was the legislature's intent to exclude cable set top box converters and tuners from the definition of 'machines and tools.'"[7]

         B. Analysis

         Horbal asserts that the circuit court erred in ruling that the language in Code § 58.1-1101(A)(2a) is ambiguous and considering "extrinsic evidence." Horbal contends that set top boxes fall within the plain meaning of "machines, " which are to be taxed locally as tangible personal property.

         Upon judicial review of a determination by the Tax Commissioner, the burden is on Horbal "to show that the ruling of the Tax Commissioner is erroneous." Code § 58.1-3983.1(G). "The State Tax Commissioner's determination is presumed valid." City of Richmond v. Virginia Elec. & Power Co., 292 Va. 70, 74, 787 S.E.2d 161, 163 (2016) (quoting Palace Laundry, Inc. v. Chesterfield County, 276 Va. 494, 497, 666 S.E.2d 371, 373 (2008)). "The Department of Taxation and the Tax Commissioner administer and enforce the Commonwealth's tax laws." Nielsen Co. (US), LLC v. County Board of Arlington County, 289 Va. 79, 88, 767 S.E.2d 1, 5 (2015); Code § 58.1-202. Therefore, although a court does not defer to their interpretation of an unambiguous tax statute, a court will afford great weight to their interpretation when the statute's meaning is doubtful. Nielson Co., 289 Va. at 88-89, 767 S.E.2d at 4-5.

         Under Code § 58.1-1100, "[i]ntangible personal property, including capital of a trade or business of any person, firm or corporation . . . is hereby segregated for state taxation only." Code § 58.1-1101 classifies certain personal property, tangible in fact, as "intangible personal property." With specific regard to cable television businesses, "[p]ersonal property, tangible in fact, used in cable television businesses" is classified as "intangible personal property." Code § 58.1-1101(A)(2a). However, "[m]achines and tools, motor vehicles, delivery equipment, trunk and feeder cables, studio equipment, antennae and office furniture and equipment of such businesses shall not be defined as intangible personal property for purposes of this chapter and shall be taxed locally as tangible personal property." Id.

         It is undisputed that the set top boxes are personal property used in Verizon's cable television business. Therefore, the set top boxes are classified as "intangible personal property" not subject to local taxation unless they fall within one of the enumerated exceptions. Code §§ 58.1-1100, -1101(A)(2a); see Daily Press, Inc. v. City of Newport News, 265 Va. 304, 309, 576 S.E.2d 430, 433 (2003); City of Winchester v. American Woodmark Corp., 250 Va. 451, 456, 464 S.E.2d 148, 151 (1995). Horbal contends that the plain meaning of ...


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