blacksburg to vt july 2011 meals tax response
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July
8,
2011
Dr.SherwoodWilson
VicePresidentforAdministrativeServices
VirginiaPolytechnicInstituteandUniversity
248BurrussHall(0182)
Blacksburg,Virginia 24061
DearSherwood:
TheMayorhasaskedthatIprovideyouwitharesponsetoPresidentStegersletterfromlastfallandthe
accompanyingVirginiaTechreviewdocument (theReport). Incontinuing thisdiscussion, Iwant to
emphasize that the Townwishes tomaintain the current good relationshipwithVirginia Tech. The
TownandVirginiaTechworkwelltogetherinmanyways.
TheReportisausefulresourceinprovidinginformationabouttheoperationsoftheUniversitysdining
program,therelationshipwiththeTownofBlacksburgandtheUniversityspositiononthecollectionof
local taxesoncampus. However,wedisagreewithseveraloftheconclusions, including theassertion
that theUniversitydoesnothave the legalauthority tovoluntarily remit the localmealsand lodging
taxestotheTown.
Ourpositionis,basically,fairlysimple. VirginiaTechengagesinavarietyoftransactionswithbusinessesandindividualsotherthanitsstudentsandemployees. Inthesesituations,wethinkitisreasonableand
appropriateforVirginiaTechtovoluntarilycollectapplicableTowntaxesandremitthemtotheTown.
VirginiaTech LegalPosition TheReport takesanewpositionthatVirginiaTechdoesnothave the
legalauthoritytocollectTowntaxes. Afterreviewingthematter,ourlegalcounselhasconcludedthat
thisanalysisisincorrectandthatArticleX,7appliesonlytostatetaxes. TheTownspositioncanbe
summarizedasfollows:
The plainmeaning of Article X, 7 is that any state taxes and state revenues collected byVirginiaTechmustbepaidintotheStateTreasury,nothingmore. Thisconclusionissupported
byProfessorA.E.DickHowardsdiscussionofArticleX,7inhistreatiseCommentariesontheConstitutionofVirginia.
ThestatutesthatimplementArticleX,7(VirginiaCode2.21802and58.113)onlyrefertostate taxes. Virginia Code 2.21802 does not require Virginia Tech to transmit Town of
Blacksburg taxes to the State Treasury, since Blacksburgs taxes do not belong to the
Commonwealth. Similarly,theplainlanguageof58.113islimitedtostatetaxes. Thenew
positionisalsoinconsistentwithVirginiastatutesthatauthorizethecollectionoflocalrevenues
bystateagencies.
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TheReportrefers toa1968annexationstipulationbetween theTownandVirginiaTech. AsnotedbytheAttorneyGeneralsofficeyearsago,thisstipulationhasnolegaleffect. The1968
stipulation agreement was supposed to bemade part of any decree of annexation which
provides for theannexationofanyof thepropertiesofVirginiaPolytechnic Institute,by the
TownofBlacksburg. However,itwasnotpartoftheannexationdecree.
AmoredetailedstatementoftheTownspositionontheseissuesisincludedasExhibitA.
Irealizethatwemaydisagreeontheselegalissues. Unfortunately,thishasalsoresultedinanobstacle
torenewingtheVirginiaTechelectricservicefranchise.
Basedon theReport,VirginiaTechhasnow requested that theTownagree toeliminateanyexpress
reference to theTownsutility tax in anynew franchiseagreement. In lieuof collecting theTowns
utilitytax,VirginiaTechproposestopaytheTownafixedamountbasedoncollectionsinrecentyearsof
theTownsutility tax.ThesefundswouldbegeneratedbywhatVirginiaTechproposesto labelasan
additionalfranchisefeethatitwouldcollectfromconsumers.
We seepracticalproblemswith thisapproach. Theutility tax isbasedonapercentageof thedollar
amount charged for the electricity consumed and has the potential to increasewith time. Virginia
Techs initial proposal would fix the additional franchise fee with no provision for increases or
adjustments.
I think we both realize the importance of getting this particular issue resolved using an approach
acceptabletobothsides,andIlookforwardtodiscussingitwithyousoon.
OtherMattersintheReport
MunicipalServices Onpage9,theReportstatesthatVirginiaTechdoesnotreceivefromtheTownmanyoftheservicesthatamunicipalitywouldtypicallyprovide,citingthatVirginiaTechhas itsown
police department and volunteer rescue squad. We do not agree with this statement. To my
understanding,alllargepublicuniversitiesinthestate,suchastheUniversityofVirginia,JamesMadison
andWilliamandMary,have campuspolicedepartments. More importantly,Blacksburg,notVirginia
Tech, fundspolice, fireand rescue services to the vastmajorityofVirginiaTech students,given that
mostVirginiaTech students liveoff campus. Additionally, fire servicesareprovidedby theTownof
BlacksburgoncampusthroughacontractforservicewiththeUniversity.Thiscontractualarrangement
providesasignificantsavingstotheUniversitybyavoidingthecostsoffireequipment,facilitiesandpaid
staff. Thecurrentarrangementforfireprotectionservices ismutuallybeneficialtotheUniversityand
theTownofBlacksburg.
Taxes Requested are not Taxes on the University It is important to emphasize that the taxes in
questionareconsumerexcise taxes,not taxesonVirginiaTech. Stateproperty isexempt from local
propertytaxation. Whileaservicechargeisauthorizedforstateownedproperty,1itwouldmakemore
sense forVirginiaTech tohelp fundbetter localservicesbysimplycollecting these local taxes,rather
thanlettingthemgouncollected.
1VirginiaCodeTitle58.1,Chapter34,PaymentsinLieuofRealPropertyTaxation, 58.13403
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Contract for the Management of the Inn at Virginia Tech Virginia Tech and the Benchmark
Management Company (Benchmark) recently entered into an Operating Agreement for the
management of the Inn at Virginia Tech and Skelton Conference Center (Inn). The Agreement
provides,atsection2.10(a),thatBenchmarkshallberesponsibleforanytaxesassessedontheInn. We
believe thatVirginiaTech couldand should consent toBenchmarks collectionand remittanceof the
Townsmealsandlodgingtaxes.
AdministrativeCostsofCollectingTaxesOnpage12oftheReport,administrativecostsarecitedas
aconcernifTowntaxesweretobecollected. However,theamountofrevenuethatVirginiaTechwould
receive in the form of the sellers discount allowed by the Town Codewould certainly cover, if not
exceed,anyincrementaladministrativecosts.
Perceived ImpactsonotherUniversities Perceived impactsonotherhighereducational institutions
arenot, inouropinion, a reason todecline to cooperatewith theTownon these taxmatters. The
relationshipbetweenChristopherNewportand theCityofNewportNews,aswellas the relationship
between theCityofNorfolkandOldDominionUniversity, isdifferent from the relationshipbetween
VirginiaTechandtheTownofBlacksburg. Voluntarilycollectinglocaltaxeswouldnotsetanybinding
legalprecedent.
LocalTaxAnalysisBasedonUBTI Finally, the reportcontainedadiscussionof collectingmealsand
lodgingtaxesinthecontextofunrelatedbusinesstaxableincome(UBTI). UBTIisnotabasisforthe
collectionofexcisetaxes;UBTIrelatestofederal incometaxontaxexemptentities. Ifthenumberof
$39,205(citedonpage14astheamountofmealsand lodgingtaxespotentiallypayabletotheTown)
wascalculatedusingUBTI,thatnumberisnotaccurate. Mealsandlodgingtaxesarecalculatedongross
receipts,notUBTI.
Conclusion
We
thank
you
for
providing
the
thorough
response
to
the
Mayors
request.
We
also
appreciate
your
assistanceincollectionoftaxesfromvendorsatVirginiaTechathleticevents. However,basedonthe
reasonsabove,theTown isrequesting thatVirginiaTecharrange forBenchmark tocollectmealsand
lodging taxesat the InnatVirginiaTechandvoluntarily collect theTownsmeals taxonnonexempt
transactionsatVirginiaTechdiningfacilities. Ilookforwardtoworkingwithyoutoresolvetheissueof
theVirginia TechElectric Service franchise and toour continueddiscussions to resolve the issuesof
collectinglocalmealsandlodgingtaxesoncampus.
Sincerely,
MarcA.Verniel
TownManager
Enclosures
c: LawrenceS.Spencer,Jr.,TownAttorney
BlacksburgTownCouncilmembers
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EXHIBITA
TOWNRESPONSETOLEGALISSUES
A. TheProperEffectofArticleX,7.
TheprimaryissueintheReportthatnecessitatesaresponseisVirginiaTechsnewpositionthatitdoesnot
havethelegalauthoritytocollectTowntaxes. TheReportstatesthatalltaxescollectedbyVirginiaTech
mustbepaidintotheStateTreasury.
AccordingtotheReport,VirginiaTechspositionisbasedonthenewlydevelopedanalysisoftheUniversity
LegalCounselthatArticleX, 7oftheConstitutionofVirginiarequiresthatanyTowntaxescollectedby
VirginiaTechwouldhavetobepaidintotheStateTreasury. SeeReport,pages1112.TheReportrefersto
VirginiaCode58.113asthelegalauthoritysupportingtheanalysis.
However,ArticleX,7appliesonlytostatetaxes;theconstitutionalprovisiondoesnotapplyinanywayto
thecollectionorremittanceoftowntaxes.Asreviewedbelow,thenewpositionisinconsistentwiththe
plainmeaningofArticleX,7;inconsistentwiththeimplementingstatutes(VirginiaCode2.21802and
58.113);inconsistentwiththelongstandingpracticeofVirginiaTechtocollectandremitTownutilityand
electricityconsumptiontaxes;andinconsistentwithgoodpublicpolicy.
1. ThePlainMeaningRule.
TheSupremeCourtofVirginiahasstatedtherulesgoverningtheinterpretationofconstitutionalprovisions.
First,whenconstitutional language isplainandunambiguous,acourtmustgivethe language itsplain
meaning.Scottv.Commonwealth,247Va.379,384,443S.E.2d138,141(1994).Theconstitutionisviewed
and
construed
as
a
whole,
and
every
section,
phrase
and
word
given
effect
and
harmonized
if
possible.
Dean
v.Paolicelli,194Va.219,226,72S.E.2d,506,511(1952).Everywordintheconstitutionistobeexpounded
initsplain,obvious,andcommonsense,unlessthecontextgivessomegroundtocontrol,qualifyorenlarge
it. Lipscombv.Nuckols,161Va.936,9456,172,S.E.886,889(1934).
ArticleX,7readsasfollows:
Alltaxes, licenses,andotherrevenuesoftheCommonwealthshallbe
collected by its proper officers and paid into the State Treasury.
(Emphasisadded).
TheUniversityspositionignoresthewordsoftheCommonwealthasusedintheconstitutionalprovision.
ArticleX,7meansexactlywhat itsays. Whenstateofficerscollect taxesand revenues. . .of the
Commonwealth...,suchofficersmustpaythosetaxesintotheStateTreasury. Thisprovisiondoesnot
addressthecollectionandremittanceoflocaltaxeswhenastateagencyactsasthesellerintransactions
withthegeneralpublicthataresubjecttolocalexciseandconsumptiontaxes.Theconstitutionalprovision
doesnotstatethatastateagencymaynotcollectlocaltaxesorremitcollectedlocaltaxestothelocality
imposingthetax.
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Stateddifferently,exciseandconsumptiontaxesimposedbyatownarenotstatetaxeswithinthemeaning
ofArticleX,7.ThisconclusionissupportedbyProfessorA.E.DickHowardstreatiseCommentariesontheConstitutionofVirginiainwhichhestates:Section7laysdownthreerequirements. (1)allstatetaxes,licensesandotherrevenuesshallbecollectedbytheproperofficersandpaidintothestatetreasury...
1
(Emphasisadded;copyattached).
TheplainmeaningofArticleX,7isthatanystatetaxesandstaterevenuescollectedbyVirginiaTechmust
bepaidintothestatetreasury,nothingmore.
2. TheImplementingStatutes.
VirginiaCode2.21802and58.113implementArticleX,7. VirginiaCode2.21802providesthat
Everystatedepartment,division,officer,board,commission,institution
orotheragencyownedorcontrolledbytheCommonwealth,whetherat
theseatofgovernmentornot,collectingorreceivingpublicfunds,or
monies from any source, belonging to or for the use of the
Commonwealth,orfortheuseofanystateagency,shallhereafterpaythe
samepromptlyintotheStateTreasury.(Emphasisadded).
VirginiaCode2.21802addresseshowstateagenciesmusthandlestatefundsandclearlyprovidesthat
thesestatetaxesandrevenuesmustbelongtoorotherwisebefortheuseoftheCommonwealth.Virginia
Code2.21802doesnotrequireVirginiaTechtotransmitTownofBlacksburgtaxestothestatetreasury,
sinceBlacksburgstaxesdonotbelongtotheCommonwealth.
VirginiaCode58.113readsasfollows:
Exceptwhenotherwisespecificallyprovided,allstate taxes, including
penalties
and
interest,
collected
under
the
provisions
of
this
title,
shall,
whenpaidintothestatetreasury,bepaidintothegeneralfundofthe
statetreasuryforthesupportofthegovernment. (Emphasisadded).
Theplainmeaningof58.113islimitedtostatetaxes.
ThenewpositionisalsoinconsistentwithVirginiastatutesthatauthorizethecollectionoflocalrevenuesby
stateagencies.See,forexample,VirginiaCode46.2756(permittingtheDepartmentofMotorVehiclesto
collectlocalvehiclelicensefeesandtaxesonbehalfoflocalgovernments);58.1520,etseq.,(DepartmentofTaxationsetoffdebtcollectionprogramunderwhichtheDepartmentofTaxationwithholdsmoneyowed
tolocalgovernments(suchasunpaidlocaltaxesorutilitybills)fromstateincometaxrefundpayments);
19.2349(authorizingtheDepartmentofTaxationtocollectonbehalfoflocalgovernmentsamountsdue
forviolationsoflocalordinances).ThestatutesenactedbytheGeneralAssemblyimplementingArticleX,7
contradicttheVirginiaTechsnewposition. Furthermore,thenewpositiondevelopedbyVirginiaTechis
withoutsupportfromanyAttorneyGeneralopinionorotherlegalauthority.
11 A.E. Dick Howard, Commentaries on the Constitution of Virginia, 1091, University Press of Virginia (1974).
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3. LongStandingVirginiaTechPractice.
TheTownsreadingofArticleX,7isconsistentwithdecadesofVirginiaTechsadministrativepracticeand
policy. Formanyyears,andapparentlywithoutcomplication,VirginiaTechhascollectedTownconsumer
utilityandconsumptiontaxesonthesaleofelectricitytothegeneralpublicandremittedthesetaxestothe
Town.
4. PublicPolicy.
The Towns reading ofArticle X, 7 is consistentwith good public policy. Virginia Tech engages in
transactionswithbusinessesandindividualsotherthanitsstudentsandemployees. Thesetransactions
involvethesaleofelectricity,thesaleoflodging,andthesaleofmeals.ThetransactionsbetweenVirginia
Tech and thegeneralpublic are subject to excise and consumption taxes imposedby the Townand
authorizedbyVirginia statutes. In these situations,VirginiaTechshould collect theTownexciseand
consumptiontaxesandremitthesetaxestotheTown,ratherthanletthesetaxesgouncollected.Thereis
little, ifany,publicpolicyjustificationforastateagencythatsellselectricity, lodgingandmealstothe
generalpublictofailtocollectandremitTowntaxesdueonsuchtransactions.
B. VirginiaTechElectricServiceandtheTownofBlacksburgFranchise.
ThenewpositionwithrespecttoArticleX,7hascreatedanobstacletothetimelyrenewaloftheVirginia
Techelectricservicefranchise.TheReport(atpage11)statesthatVirginiaTechshouldnotbecollectingand
remittingtheTownsutilitytax.
VirginiaTechElectricServiceprovideselectricservicetothepublicinsomeareasoftheTown. Toprovide
thisserviceintheTown,VirginiaTechhasenteredintoafranchiseagreementwiththeTownfortheuseof
theTownsrightsofway. Theseagreementsbeganinthe60s;themostrecentfranchiseagreementwas
granted
in
May
2000
and
expired
in
2010.
Inthe2000FranchiseAgreement,VirginiaTechtookthepositionthatitcouldnotberequiredtocollectthe
Townslocalutilitytax,butagreedtovoluntarilycollectandremitthelocaltax.Now,basedontheReport,
VirginiaTechhasrequestedthattheTownagreetoeliminateanyexpressreferencetotheTownsutilitytax
inanynewfranchiseagreement. InlieuofcollectingtheTownsutilitytax,VirginiaTechproposestopaythe
TownafixedamountbasedoncollectionsinrecentyearsoftheTownsutilitytax.Thesefundswouldbe
generatedbywhatVirginiaTechproposestolabelasanadditionalfranchisefeethatitwouldcollectfrom
consumers.
Therearepracticalissueswiththisapproach.Theutilitytaxisbasedonapercentageoftheamountcharged
for the electricity consumed. VirginiaTechsproposalwould fix theadditional franchise feewithno
provisionforincreasesoradjustments.Thebasisfortheamountoftheproposedadditionalfranchisefeeis
unclear,althoughinaninitialproposaltheamountwasclosetotheamountscollectedinrecentyearsbased
ontheTownslocalutilitytax.TheTownmustalsoaddressthelimitedabilityoftheTowntocontractaway
itstaxingpowers.
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C. The1968StipulationAgreement.
TheReportreferstoa1968annexationstipulationbetweentheTownandVirginiaTech.Thisstipulationhas
nolegaleffect. Alocalgovernmentcannotcontractawayitstaxingauthority,astheAttorneyGenerals
officestatedyearsago. (SeeattachedletterfromWalterRylandfrom1977).Theplainlanguageofthe1968
stipulationagreementprovidesthatitshallbemadepartofanydecreeofannexationwhichprovidesfor
theannexationofanyofthepropertiesofVirginiaPolytechnicInstitute,bytheTownofBlacksburg. This
stipulationwasnotmadepartoftheannexationdecree. Inadditiontoitsinherentinvalidity,thisfailureto
includethestipulationintheannexationdecreeandthepassageof43yearsmakethisissueahistorical
footnoteonly.
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