Attorney General Opinions
Opinion Number: 12161998
Tax Type:Property Tax
Brief Description:Nexus, Apportioned Assessment
Topics:Property Subject to Tax; Taxable Income
Date Issued:12/16/1998
The Honorable William Roscoe Reynolds
Member, Senate of Virginia
You ask whether § 58.1-3511(B) of the Code of Virginia requires that the assessment of personal property taxes on the rolling stock of an interstate common carrier be apportioned in a Virginia locality upon proof that the property is subject to taxation in another state or whether the taxpayer must submit proof of the actual payment of taxes on the property in another state.
You ask whether § 58.1-3511(B) of the Code of Virginia requires that the assessment of personal property taxes on the rolling stock of an interstate common carrier be apportioned in a Virginia locality upon proof that the property is subject to taxation in another state or whether the taxpayer must submit proof of the actual payment of taxes on the property in another state.
You ask whether § 58.1-3511(B) of the Code of Virginia requires that the assessment of personal property taxes on the rolling stock of an interstate common carrier be apportioned in a Virginia locality upon proof that the property is subject to taxation in another state or whether the taxpayer must submit proof of the actual payment of taxes on the property in another state.

Section 58.1-3511(B) provides:

While the statute clearly requires that, in order to receive an apportioned assessment, the property must be "subject to taxation'' in another state, it does not define the phrase "subject to taxation.''

A 1988 opinion of the Attorney General concludes that, in order to receive an apportioned assessment under § 58.1-3511(B), the taxpayer must show only that the property is "subject to taxation on an apportioned basis' in another jurisdiction.''1 While the opinion states that the taxpayer need not show that taxes actually have been assessed against the property in another jurisdiction or that the taxes have been paid,2 it does not discuss what constitutes proof that the property is "subject to taxation'' in another jurisdiction.

In 1994, the Supreme Court of Virginia in the case of Ryder Truck Rental v. County of Chesterfield3 considered the proof needed to trigger the apportionment requirement of § 58.1-3511(B). The Court held that evidence showing that the company's vehicles operate in states other than Virginia and presenting the portion of miles traveled each year in Virginia is insufficient to establish that the property is "subject to taxation'' in another state.4 Rather, the taxpayer must show that the property is "subject to taxation'' in another jurisdiction because it has a tax situs there.5 As the Court stated: "The substantial nexus, or tax situs, requirement is designed to guard against the risk of double or multiple taxation in violation of the Due Process and Commerce clauses while insuring that property used in interstate commerce does not escape taxation.''6 Absent a tax situs in another state, the property is not subject to the risk of double taxation and the domiciliary state may tax the full value of the property.7

The "substantial nexus'' requirement is part of the test established by the Supreme Court of the United States in the case of Complete Auto Transit, Inc. v. Brady8 for determining whether the state taxation of interstate commerce satisfies the Commerce Clause. A state tax does not violate the Commerce Clause if the tax (1) is applied to an activity with a substantial nexus to the taxing jurisdiction, (2) is fairly apportioned, (3) does not discriminate against interstate commerce, and (4) is fairly related to services provided by the taxing jurisdiction.9 The Supreme Court of Virginia in Ryder Truck Rental concluded that, since substantial nexus in another taxing jurisdiction is a prerequisite to the property's being "subject to taxation'' under Commerce Clause analysis, it is likewise a prerequisite to the apportionment of the taxes under § 58.1-3511(B).10

The Court held that the taxpayer's showing that its trucks accumulate mileage in other jurisdictions and records showing the amount of the mileage in other jurisdictions failed to establish substantial nexus, or tax situs, in the other jurisdictions.11 The Court stated: "Ryder has not demonstrated that it has actually paid taxes or would even be subject to taxes in another jurisdiction on this basis. It is not enough for a taxpayer to merely identify another jurisdiction in which the taxable instrumentality is used.''12 The company had not shown that it reported the vehicles based in Chesterfield County for personal property tax purposes in another jurisdiction or that any other jurisdiction assessed taxes on the property.13 The Court considered the failure of any other jurisdiction to assess taxes on the property to be "probative.''14 The Court agreed with the company, however, that the actual payment of the tax is not a prerequisite to the finding of a tax situs in another jurisdiction.15

Evidence other than assessment or payment of a tax on the property in a jurisdiction also may establish tax situs in the jurisdiction. The Court summarized this type of evidence and pointed out the company's failure to present such evidence:
The decision of the Supreme Court in the case of Ryder Truck Rental v. County of Chesterfield establishes the type of proof a taxpayer is to present to qualify for an apportioned assessment under § 58.1-3511(B). The local tax official is the appropriate person to hear the evidence and to determine whether the evidence shows that the taxpayer is "subject to property taxation in any other state on the basis of an apportioned assessment.''17 A taxpayer may challenge in court either the tax official's ruling on the facts or the tax official's application of the law to the facts.18

1 1987-1988 Op. Va. Att'y Gen. 578, 587.
2 Id.
3 248 Va. 575, 449 S.E.2d 813 (1994).
4 Id. at 580, 449 S.E.2d at 816.
5 Id. at 577-78, 449 S.E.2d at 815.
6 Id. at 578, 449 S.E.2d at 815.
7 Id.
8 430 U.S. 274 (1977).
9 Id. at 279.
10 248 Va. at 577-78, 449 S.E.2d at 815.
11 Id. at 579, 449 S.E.2d at 816.
12 Id.
13 Id. at 580, 449 S.E.2d at 816.
14 Id. at 579 n.4, 449 S.E.2d at 816 n.4.
15 Id.
16 Id. at 579, 449 S.E.2d at 816 (citations omitted).
17 Section 58.1-3511(B). See also § 58.1-3109(6) (commissioner of revenue shall procure from taxpayers or their agents information necessary to assess taxpayers' tangible personal property taxes); § 58.1-3110 (commissioner of revenue may summon taxpayer or other person to appear and answer questions regarding tax liability of specified taxpayer) .
If a commissioner determines that the property is subject to taxation on an apportioned basis in another state, the commissioner is to tax the property on an apportioned basis in his jurisdiction. § 58.1-3511(B). § 58.1-
3511(B) makes no provision in such instance for assessing the property at full value and then crediting taxes actually paid to other states.
18 See § 58.1-3984(A).