Opinion
Case No. 96-10413-SSM
February 19, 1998
Bennett A. Brown, Esquire, Fairfax, VA, of Cousel for the debtor
William S. Burroughs, Jr., Esquire, Alexandria, VA, of Cousel for the City of Manassas Park
MEMORANDUM OPINION
This matter is before the court on the objection of the debtor in possession (now the reorganized debtor) to a proof of claim filed by the City of Manassas Park, Virginia ("the City"), for unpaid personal property taxes in the amount of $87,330 for the 1994 and 1995 tax years. The debtor says that it does not owe the taxes, and, indeed, is entitled to a refund of approximately $17,000 for 1994. Hearings were held on November 20, 1997 and January 16, 1998. The court then took the matter under advisement to review the applicable law. The question presented is whether the City of Manassas Park, where the debtor's offices and storage yard is located, is the tax situs for the debtor's heavy construction equipment — bull dozers, front-end loaders, backhoes, and the like — or whether the tax situs is the city or county where the equipment was actually deployed on "tax day" (January 1) for each of the years in question. The issue appears to be one of first impression.
At the hearing on November 20, 1997, neither side presented evidence, and the parties simply requested that the court rule on the legal issues. The court treated the hearing as though the parties had filed cross-motions for summary judgment and concluded that there were disputed issues of material fact that required an evidentiary hearing. The court did rule, however, as a matter of law (1) that the term "motor vehicle" as used in Va. Code Ann. § 58.1-3511 does not include a vehicle used in the Commonwealth of Virginia but not required to be licensed in Virginia; and (2) that the debtor was not statutorily required, as a condition of contesting the assessments at issue, to provide proof that personal property taxes had been paid to another local taxing authority in Virginia. Those rulings were embodied in an order entered November 11, 1997.
Findings of Fact
Many of the facts have been stipulated and are not in dispute. L. W. Jager Company, Inc. ("the debtor") is in the construction business. It filed a voluntary petition under chapter 11 of the Bankruptcy Code in this court on January 30, 1996, and continued to operate its business as a debtor in possession. A plan of reorganization was confirmed on November 25, 1997.
The City initially objected to confirmation but withdrew its objection after the debtor agreed that the City's claim, to the extent allowed by the court, would be paid over two years with interest at 10%.
The debtor's offices and storage yard are located in the City of Manassas Park, Virginia. In April 1994, the debtor filed a personal property tax return with the City for the tax year 1994 that listed tangible personal property in the amount of $3,330,310. In December of the following year, 1995, it filed an amended return for 1994 that listed only $1,178,402 in tangible personal property. The difference resulted from the fact that the original return included all of the heavy construction equipment that the debtor owned on January 1, 1994, regardless of its physical location. The amended return, by contrast, listed only the heavy construction equipment that was physically located in the City of Manassas Park on January 1st and omitted equipment that was deployed on that day on job sites located in other cities and counties, primarily Fairfax County, Prince William County, and Loudoun County. Contemporaneously with the filing of the amended return, the debtor filed personal property returns with those other jurisdictions declaring the items of construction equipment that were present within those jurisdictions on January 1st. As a result of the amended return, the debtor claims that it is entitled to a refund of $17,000 for 1994.
For tax year 1995, the debtor filed, several months after the due date, a personal property tax return consistent with its amended 1994 return: that is, it declared to the City only those items of construction equipment physically present in Manassas Park on January 1 of that year, and for equipment deployed outside Manassas Park on January 1st, it filed returns with the jurisdictions where the property was physically located. While the debtor's witness testified that the motive for doing so was not to reduce the debtor's tax burden but rather "to get it right," it is undisputed that the actual effect was to reduce the amount the debtor paid in personal property taxes, since other local taxing jurisdictions in the Northern Virginia area depreciate construction equipment for tax purposes more rapidly than the City does.
On February 15, 1996, the City filed a timely proof of claim for unpaid 1994 and 1995 personal property taxes in the amount of $87,330. On December 9, 1996, the debtor in possession filed an objection to the City's claim, asserting that the heavy construction equipment that is the subject of the City's claim was not located for tax purposes in Manassas Park, and that the debtor had filed personal property tax returns in the jurisdictions where the equipment was located and that it had paid, or would pay under its plan, the taxes in those jurisdictions.
Mary Jager McElroy, an employee and part-owner of the debtor, testified that the debtor is in the business of excavation, land development, and site utility contracting in the Northern Virginia area and, during the years in question, had construction contracts over most of Northern Virginia, including Stafford, Fairfax, Loudoun, and Prince William counties. During the period in question, however, it had no construction contracts in Manassas Park. She testified that the heavy construction equipment owned by the company and used in connection with its construction projects was normally not kept in the company's storage yard in Manassas Park unless it needed to be repaired or was a "seldom used" item. Rather, the individual items of equipment were transported to a particular job site as needed and kept there until the project was finished or the piece of equipment was needed at another site. Such on-site periods could be as short as one or two days, but more typically ranged from two weeks to nine months. All of the equipment in question was transported to and from job sites on a "low boy" tractor-trailer, and none of the construction equipment has license plates to travel on a public highway or has been issued a certificate of title by the Division of Motor Vehicles. Of the thirty pieces of equipment at issue, only a few have rubber tires, and the balance have metal tracks. With the exception of one piece of equipment (a chipper), all are capable of self-propulsion on the job site. None of the pieces, however, are ever driven on a public highway, although the rubber-tired equipment will sometimes be driven across a street to get to another lot while a subdivision is still "under construction."
The witness denied that any piece of equipment was ever moved out of Manassas Park specifically so that it would not be present on "tax day." She testified that she prepared the amended 1994 return and the 1995 return based on payroll records kept by the company showing the deployment of its equipment. A summary of those records admitted at the hearing reflected the following location for the pieces of equipment at issue on January 1, 1994 and January 1, 1995, respectively: Description and tax # Location 1/1/94 Location 1/1/95
L-3 Loader (#1083) Manassas Park sold L-4 Loader (#1084) Fairfax County Loudoun County L-5 Loader (#1088) Loudoun County Prince William Co. L-6 Loader (#1089) Loudoun County Loudoun County L-8 Loader (#1143) Loudoun County Manassas Park L-7 Loader (#1105) Fairfax County Loudoun County L-9 Loader (#1098) Fairfax County Prince Wm Co. L-11 Loader (#1143) Loudoun County Loudoun County L-12 Loader (#1092) leased Prince William Co. L-13 Komatsu Loader leased leased 77 Loader (#1125) Fairfax County Prince William Co. D-2 Bulldozer (#1087) Fairfax County Prince William Co. 25 Bulldozer (#1090) Prince William Co. Prince William Co. 26 Bulldozer (#1091) Fairfax County Prince William Co. 17 RH2Backhoe (#1129) Fairfax County Loudoun County 19 Backhoe (#1105) Manassas Park Loudoun County 20 Backhoe TH-3 (#1108) Prince William Co. Prince William Co. 21 Backhoe TH-4 (#1195) Fairfax County Loudoun County 22 Backhoe TH-5 (#1196) Fairfax County Prince William Co. 28 P-3 Scraper (#1114) Manassas Park Prince William Co. 30 P-4 Scraper (#1122) Manassas Park Prince William Co. 33 Roller R-2 (#1119) Fairfax County Prince William Co. 34 Roller R-3 (#1104) Manassas Park Prince William Co. 35 Roller R-4 (#1129) Fairfax County Manassas Park 37 Roller (#1120) Manassas Park Manassas Park 544E Rubber Tire Loader (#1168) Fairfax County Loudoun County 71 Morbark Chipharvestor (#1184) Prince William Co. Prince William Co. 70 Trojan End Dump (#1184) Prince William Co. Prince William Co. 69 Trojan End Dump (#1184) Prince William Co. Prince William Co. 68 Trojan End Dump (#1184) Prince William Co. Prince William Co. With only three exceptions, none of the equipment not located in Manassas Park on tax day had been located there during the previous 30 days. Conversely, two pieces of equipment reported as being in Manassas Park on tax day had been located elsewhere during the prior month.Conclusions of Law and Discussion I.
The sole question presented by the debtor's objection is the proper tax situs for the debtor's heavy construction equipment. No issue is raised concerning the value at which the equipment has been assessed, the proper rate to be applied, or any applicable credits. This court has jurisdiction over this controversy under 28 U.S.C. § 1334 and 157(a) and the general order of reference from the United States District Court for the Eastern District of Virginia dated August 15, 1984. Under 28 U.S.C. § 157(b), this is a core proceeding in which final judgments and orders may be entered by a bankruptcy judge.
II.
Once a creditor files a proof of claim, the claim "is deemed allowed" unless a party in interest objects. § 502(a), Bankruptcy Code. Moreover, a proof of claim executed and filed in accordance with the Federal Rules of Bankruptcy Procedure constitutes "prima facie evidence of the validity and amount of the claim." F.R.Bankr.P. 3002(f). As a result, the party objecting to a properly filed proof of claim has the initial burden of presenting sufficient probative evidence to overcome such prima facie effect. In re C-4 Media Cable South, L.P., 150 B.R. 374, 377 (Bankr. E.D. Va. 1992). Once the debtor has done so, the burden of proof then shifts to the creditor to establish the validity and amount of its claim.
Where, however, a tax claim is involved, and the specific issue is one on which, in a nonbankruptcy forum, the taxpayer would have the burden of proof, a debtor-taxpayer in bankruptcy must carry the burden of proof on that issue in connection with an objection to claim. IRS v. Levy (In re Landbank Equity Corporation), 973 F.2d 265 (4th Cir. 1992) (debtor-taxpayer has burden of proof on disallowed deductions). There can be little doubt that under Virginia law, a personal property tax assessment by a commissioner of revenue is entitled to a presumption of correctness, and that the burden is on the taxpayer to show that the assessment is incorrect. County Bd. v. Stull, 217 Va. 238, 227 S.E.2d 698 (1976). Accordingly, the ultimate burden is on the taxpayer to establish that the Commissioner of Revenue has incorrectly determined the situs of the debtor's heavy construction equipment to be Manassas Park.
III. A.
Both sides agree that the controlling statute is Va. Code Ann. § 58.1-3511, which provides in relevant part as follows:
A. The situs for the assessment and taxation of tangible personal property, merchants' capital and machinery and tools shall in all cases be the county, district, town or city in which such property may be physically located on the tax day. However, the situs for purposes of assessment of motor vehicles, travel trailers, boats and airplanes as personal property shall be the county, district, town or city where the vehicle is normally garaged, docked or parked. . . . In the event it cannot be determined where such personal property, described herein, is normally garaged, stored or parked, the situs shall be the domicile of the owner of such personal property.
(emphasis added). Thus, the statute plainly distinguishes between two broad categories of personal property and applies a different rule to each. "Motor vehicles, travel trailers, boats, and airplanes" are taxed where "normally garaged, docked, or parked," if that can be determined, otherwise in the "domicile of the owner." All other tangible personal property is taxed where it is "physically located" on the tax day.
"Tax day" is January 1 of the year in question. See Va. Code Ann. § 58.1-3515 ("[T]angible personal property, machinery and tools and merchants' capital shall be returned for taxation as of January 1 of each year, which date shall be known as the effective date of assessment or the tax day.")
The threshold issue, then, is whether heavy construction equipment, such as front-end loaders, bull dozers, backhoes, and rollers, are "motor vehicles." The City asserts they are, while the debtor says they are not. The term "motor vehicle" is not defined in the Code of Virginia in the specific context of personal property taxes. It is, however, defined elsewhere in the Code of Virginia for tax purposes as follows:
Specifically, in connection with the motor vehicle sales and use tax. Other definitions of the term "motor vehicle" are set forth in the Code of Virginia at §§ 8.01-307 (service of process in automobile accident cases), 46.2-100 (motor vehicles generally), 46.2-705 (registration of uninsured motor vehicles), 46.2-1176 (emissions inspections), 46.2-1500 (motor vehicle dealers), 59.1-207.2 (Automobile Repair Facilities Act), 59.1-207.11 (Motor Vehicle Warranty Enforcement Act), and 59.1-207.34 (Motor Vehicle Manufacturers' Warranty Adjustment Act). The court previously concluded that it was more appropriate to apply the definition from the only tax statute that defined the term than to use a definition intended to apply in a non-tax, regulatory context.
"Motor vehicle" shall mean every vehicle, except for mobile office as herein defined, which is self-propelled or designed for self-propulsion and every vehicle drawn by or designed to be drawn by a motor vehicle, including mobile homes as defined in § 46.2-100 and every device in, upon and by which any person or property is, or can be, transported or drawn upon a highway, but excepting devices moved by human or animal power, devices used exclusively upon stationary rails or tracks and vehicles, other than mobile homes, used in this Commonwealth but not required to be licensed by the Commonwealth.
Va. Code Ann. § 58.1-2401 (emphasis added). Virginia law requires a "motor vehicle" to be licensed "before it is operated on any highway in the commonwealth." Va. Code Ann. § 46.2-600. By negative implication, therefore, a self-propelled vehicle or "device" that might otherwise fit the broad definition of a "motor vehicle" because it "can be transported or drawn upon a highway" (emphasis added) is not required to be licensed as a motor vehicle unless it is in fact "operated" or intended to be "operated" on a "highway." Put another way, a self-propelled vehicle used exclusively off-road is not required to be licensed and is therefore not a "motor vehicle" for the purpose of personal property taxation.
The debtor's witnesses testified that none of the equipment in question had license plates or certificates of title from the Virginia Department of Motor Vehicles. The witness also testified that none of the equipment was ever driven on public roads but was always transported to construction sites on trailers. Indeed, the witness testified, and the City has not denied, that driving bulldozers and other tracked equipment on public streets would be illegal because doing so would tear up the roadway. The City points, however, to testimony that the rubber-tired equipment (although not the tracked equipment) was sometimes driven from one lot to another across paved streets while a subdivision was still "under construction." Simply because paving has been laid down in a subdivision, however, does not imply that the streets are public throughfares, and the court understood the witness's testimony as referring only to streets not yet open to public use.
No evidence was presented by the City that heavy construction equipment in question is required to be licensed. While it is true, as the City points out, that the only heavy equipment expressly mentioned in the Code of Virginia as being exempt from licensing requirements are "backhoe[s] operated on any highway for a distance of no more than twenty miles from its operating base," Va. Code Ann. § 46.2-663, the very phrasing of the statute suggests that it is only because some backhoes are in fact driven on a highway that it was necessary to provide an exemption where that occurred but the distance was less than twenty miles from the "operating base." Where heavy construction equipment — whether it is a backhoe or some other type of equipment such as a front-end loader or bulldozer — is not being "operated on [a] highway," there is no statutory requirement that it be licensed in the first instance, and hence no need to provide a statutory exemption from the licensing requirement. Accordingly, the fact that there is not a specific statutory exemption for bulldozers and front-end loaders is not dispositive.
After the hearing, the City submitted for the court's consideration an unauthenticated copy of what appears to be a Department of Motor Vehicle information sheet. Putting aside the obvious hearsay nature of the document, nothing contained in it fairly suggests that heavy construction equipment not driven on the public highways is required to be licensed. Rather the document merely describes the procedure for obtaining license plates for construction equipment that is intended to be driven on the highway.
B.
Since the construction equipment at issue does not fit within the definition of "motor vehicles, travel trailers, boats, and airplanes," the tax situs is therefore determined by where it was "physically located on the tax day." There is no question that most of the debtor's heavy construction equipment was deployed on construction sites in other jurisdictions and was not, in a purely physical sense, "located" in Manassas Park on January 1 of the years in question. The City, however, citing controlling Virginia precedent, argues that a "transitory" presence in another jurisdiction does not constitute a lack of physical location in Manassas Park.
In Hogan v. County of Norfolk, 198 Va. 733, 96 S.E.2d 744 (1957), the then-Supreme Court of Appeals of Virginia construed former Va. Code Ann § 58-834, the predecessor to the current statute. At that time, the statute did not treat motor vehicles differently from other types of tangible personal property. Rather all "tangible personal property . . . machinery and tools" were taxed in the "county, district or city in which such property may be physically located on the first day of the tax year." Id. at 734, 96 S.E.2d at 745. The question was whether taxicabs operated on January 1 in the County of Norfolk were properly taxable by that jurisdiction, even though the owner lived in the City of Portsmouth. The Court observed, "The agreed facts are that these taxicabs . . . were being operated . . . in Norfolk county on January 1 of each of the years. They were necessarily then physically located in that county on that day. . . ." Id. The Court agreed with the owner, however, "that just being in Norfolk county was not enough to make them subject to taxation [there] . . . if it also appeared that they were not physically located in that county in the sense that they belonged there, but that their presence there was transitory or temporary." Id. at 735, 96 S.E.2d 745 (emphasis added). As articulated by the Court, the test was as follows:
The situs for taxation as used in this statute means something more than simply the place where the property is. It does not mean property which is casually there or incidentally there in the course of transit, but it does necessarily involve the idea of permanent location like real property. It is sufficient if it is there and being used in such a way as to be fairly regarded as part of the property of the county.
Id. at 735, 96 S.E.2d at 746. The Court also stated, "The ownership and uses for which the property is designed, and the circumstances of its being where it is, are so various that the question is more often one of fact than law." Id. at 736, 96 S.E.2d at 746. In the case before it, the Court observed, "there is nothing in the evidence to suggest that the taxicabs were in Norfolk county casually or temporarily, and were not in fact kept and maintained there in the ordinary course of the defendant's business." Id. (emphasis added). Accordingly, the Court held that the taxicabs were properly taxable by the county.
Two opinions by the Attorney General of Virginia subsequent to Hogan have addressed specific fact situations involving the "physical location" of tangible personal property other than motor vehicles. In one, a farmer resided in New Kent County near the James City County line. 1980-1981 Op. Att'y Gen. Va. 358(1981). His equipment sheds were located in New Kent County, but the majority of his land under cultivation lay in James City County. He had historically paid personal property tax on his farm equipment in New Kent County. On the year in question, however, he removed his farm equipment on December 31 from the location where it was normally kept in New Kent County and moved it across the county line into James City County. On January 2, he moved it back. The Attorney General, relying on the analysis in Hogan, opined that where property was removed from the taxing jurisdiction for the purpose of tax avoidance, it remains taxable at its original situs.
The second opinion addressed the attempted taxation by the City of Charlottesville of a privately-owned railroad coach. 1987-1988 Op. Att'y Gen. Va. 593 (1988). The coach, which belonged to a West Virginia resident and was en route to that state, was parked, apparently because of a pending sale, within the City of Charlottesville from March 27 until November 17 of the year in question. After first opining that a railroad coach was not a "vehicle" or "travel trailer" for the purpose of Va. Code Ann. § 58.1-3511, the Attorney General expressed the view that, because the coach did not enter the City of Charlottesville until March, it had not acquired a tax situs there on January 1 and was therefore not taxable there.
Unfortunately, neither opinion of the Attorney General addresses a fact situation analogous to that presented here. Unlike the farmer in New Kent County, the debtor here did not move property out of the taxing jurisdiction the day prior to tax day, and move it back two days later, for the purpose of avoiding personal property taxes in that jurisdiction. The evidence firmly establishes, rather, that the absence of the equipment from Manassas Park on January 1 of the years in question was occasioned by the deployment of the equipment on construction sites in the ordinary course of the debtor's business. Conversely, the debtor's heavy construction equipment, unlike the railroad coach the City of Charlottesville attempted to tax, had some pre-existing degree of attachment to Manassas Park on January 1 of the years in question, despite being deployed outside the city limits on that day. That is, when the property needed repair, or if it was a "seldom used" item, it was returned to Manassas Park, which clearly constituted at least in some sense a home base for the equipment, notwithstanding that in a given year a particular piece of equipment might spend more months outside than within the city, and indeed might conceivably spend no time within the city at all.
The City has also cited to 1983-1984 Op. Att'y Gen. 400 (1983), but the discussion there does not attempt to apply Hogan to a specific fact situation but rather merely summarizes the holding of that case, as well as several prior opinions of the Attorney General. It does, however, provide the following helpful analysis:
[A prior opinion] concluded that if the City of Salem is the location assigned by a company for certain trailers when they are not in use then they would be taxable in the city. . . . On the other hand, if they are merely "dropped" in the city in transit to be picked up at a later time and taken to another destination, then they cannot be said to be located in the city for tax purposes. Thus regular return of property to one locality when the subject property is not in use would be a factor to be considered in a situs determination for personal property tax purposes.
(emphasis added; internal quotation marks omitted).
The court is left, then, with the test enunciated in Hogan. That test, as noted above, requires an inquiry "into the ownership and uses for which the property is designed, and the circumstances of its being where it is" in order to determine whether the property was only "casually . . or incidentally" located in another jurisdiction "in the course of transit" or whether it was "there and being used in such a way as to be fairly regarded as part of the property of [the other jurisdiction]." Hogan, though its language is heavily relied upon by the City, is factually the converse of the present case. In Hogan, it was the taxpayer who was arguing that the taxicabs should be taxed where he resided, while the taxing authority argued that they should be taxed where they were actually being operated in the ordinary course of business on January 1 — a position with which the Virginia Supreme Court essentially agreed. Here, by contrast, it is the City that is arguing that the heavy construction equipment should be taxed where the taxpayer's offices and storage yard are located regardless of where it was being used on January 1, and the taxpayer who is arguing that it should be taxed where it was actually being operated.
The court is hampered to a considerable extent by the failure of both parties to present detailed evidence concerning the amount of time each item of equipment was present in, and absent from, Manassas Park during the years in question. Although the debtor maintains detailed computer records reflecting the deployment of its equipment by project, the debtor offered in evidence only a summary showing the location of the equipment for the preceding December and the month of January for each of the two years. The complete records — a very thick bundle of computer printouts — were produced at trial and were used by the City in cross-examining the debtor's witness but were never introduced into evidence. The resulting testimony was disjointed and painted little in the way of a clear picture. What the court would like to have known (in addition to the information — which was provided — concerning the location of the property in the days immediately preceding and immediately following tax day) is the total number of days in each of the two years that each item of equipment was located outside Manassas Park, the total number of construction sites on which it was deployed in the course of the year, and the average length of deployment. Such evidence would have given the court the kind and quality of information necessary to an intelligent application of the Hogan standard.
Nevertheless, the court must make a determination based on the evidence in the record, sketchy though it may be. The ultimate burden of persuasion, as noted above, rests with the debtor. Here, the evidence shows that the equipment, when in need of repair or when not deployed, was kept at the debtor's storage yard in Manassas Park, where its business offices were also located. For most of the year, however, the equipment was deployed, in the ordinary course of the debtor's construction business, on job sites located outside Manassas Park. No equipment was removed from Manassas Park solely in an effort to create a tax situs outside the county. The physical location of a particular item of equipment on tax day was solely a function of the construction contracts obtained by the debtor (and, where the property was returned to Manassas Park, the need for repairs). The length of time on a particular job site might be as short as one or two days or as long as nine months. Nevertheless, it is difficult to argue that, even where a particular item of equipment was present in another jurisdiction for more than six months in a year, it ever really acquired a permanent presence in that jurisdiction. The next contract that came along might easily take it into another jurisdiction. While the question is undoubtedly a close one, the court concludes that under the facts presented in this case, the debtor's construction equipment, although deployed in the ordinary course of business on job sites located in other jurisdictions, was "physically located" — at least as that term is defined in Hogan — in Manassas Park on tax day of each of the two years in question. Accordingly — that being the only disputed issue before the court — the debtor's objection to the City's proof of claim will be overruled.
IV.
A separate order will be entered consistent with this opinion overruling the debtor's objection and allowing the City's claim as filed.