blacksburg to vt july 2011 meals tax response

8/4/2019 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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blacksburg to vt july 2011 meals tax response

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