Monument Associates v. Arlington County Bd.
| Decision Date | 20 September 1991 |
| Docket Number | No. 901308,901308 |
| Court | Virginia Supreme Court |
| Parties | MONUMENT ASSOCIATES, et al. v. ARLINGTON COUNTY BOARD, et al. Record |
William T. Freyvogel, McLean (Kevin V. McAlevy, Adams, Porter & Radigan, on briefs), for appellants.
Peter H. Maier, Asst. County Atty. (Charles G. Flinn, County Atty., on brief), for appellees.
Present: CARRICO, C.J., and COMPTON, STEPHENSON, RUSSELL, * WHITING, LACY and HASSELL, JJ.
In this appeal from the denial of an application for relief from claimed erroneous assessments of local taxes, we consider whether the trial court correctly ruled that the taxpayer had failed to carry its burden to prove the assessments were "invalid or illegal," as required by the applicable statute.
In December 1987, appellants Monument Associates, Olympia & York Equity Corp., and NF Associates # 9 (collectively, the taxpayer) filed an Application for Relief under Code § 58.1-3984 against the Arlington County Board and its Commissioner of Revenue (collectively, the County) seeking correction of assessments made against the taxpayer in the total amount of $100,374.73 for business license taxes in the years 1984, 1985, and 1986. The parties filed a detailed stipulation of facts and, after a May 1990 bench trial, the court below denied the relief sought, ruling that the assessments were correct. We awarded the taxpayer this appeal from the June 1990 final order.
The taxpayer, composed of three partnerships, was formed in 1981 to engage in real estate development in Arlington County. Pursuant to the County code, the taxpayer obtained business licenses for each tax year beginning in 1981. The taxpayer paid the applicable business license taxes each year to the County based upon its "gross receipts," as required by the applicable ordinance.
In May 1987, following a tax audit, the County assessed additional business license taxes, the subject of this controversy. These additional assessments were based on the County's determination that, for the tax years in question, the taxpayer should have used the "accrual" method of accounting, rather than the "cash" method, for reporting gross receipts for business license purposes.
The portion of the ordinance in issue, codified in § 11-1(f) of the County code, provided:
"The calculation of gross receipts for license tax purposes shall be on either a cash or actual basis, provided, however, that the basis used must coincide with the system of accounts used by the taxpayer and the method employed by the taxpayer for federal and state income tax purposes." (Emphasis added.)
The following pertinent facts are undisputed. During each of the tax years in question, the taxpayer used the accrual method of accounting in filing its federal and state income tax returns. During the same period, the taxpayer used the cash method of accounting in reporting its gross receipts for County business license tax purposes.
According to the testimony, the accrual method of accounting for the purposes of gross receipts involves recording of receipts on the day upon which the right to receive them accrues. The testimony also showed that the cash method of accounting involves recording items of income and expense on the day the funds are actually received or disbursed. The evidence also revealed that, considering the nature of the taxpayer's business, there was a "vast difference" between use of the two methods for business license tax purposes.
In conducting the audit resulting in the additional assessments, the County used the accrual method. The parties stipulated that if the accrual method was the correct method to apply to the calculation of the taxpayer's gross receipts for business license purposes, then the County's additional assessments were correct. The parties also stipulated that if the cash method was the correct method to use in making such calculations, then the additional assessments were incorrect.
In the course of its decision, the trial court determined as a matter of fact that the County Board in 1949, and again in 1978, had approved the words "cash or actual basis" in adopting the ordinance. The court rejected the County's contention that use of the word "actual" in the published versions of the ordinance was a mere typographical error and that "accrual" was the word really adopted.
Nevertheless, the trial court ruled that the taxpayer had failed to establish that the assessments were "invalid or illegal," as required by Code § 58.1-3984 for it to be entitled to relief. The court reasoned that assessment of the tax was controlled by the proviso in the ordinance. Thus, according to the ruling, because the taxpayer had used the accrual method in reporting federal and state income taxes, then it was required to report gross receipts for County business license tax purposes on the accrual basis.
On appeal, the taxpayer, recognizing the fundamental rule in this type of case that a rebuttable presumption exists in favor of the validity of a tax assessment, contends that the trial court allowed the County to make assessments "that clearly violated the express language of the adopted ordinance." Noting that the cash basis system of accounting treats as income only that which is actually received and as expense only that which is actually paid out, the taxpayer argues that the obvious intent of the County Board in adopting "cash or actual" language was "to require taxpayers to report actual, cash receipts during the applicable tax period." The taxpayer contends that the term "actual" is a more generic, less technical synonym for the term "cash," reinforcing the County's expressed intent that gross receipts be reported on a cash basis. Thus, according to the taxpayer, the trial court "effectively rewrote the applicable requirements of Section 11-1(f)," forcing the taxpayer to file the business license returns "in a manner clearly not specified in the Code."
Additionally, the taxpayer argues, the trial court erred in allowing the proviso to override the "cash or actual" requirement in the first clause. Contending that the proper role of a proviso is to limit the language that precedes...
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