Virginia Law

Article 2. Corrections of Erroneous Assessments; Refunds.

The following words, terms and phrases when used in this article shall have the meanings ascribed to them in this section.

1. "Person assessed with any tax," with standing to contest such assessment, shall include the person in whose name such assessment is made, a consumer of goods who, pursuant to law or contract, has paid any sales or use tax assessed against a dealer, a consumer of real estate construction who has by contract specifically agreed to pay the taxes assessed on the contractor, and any dealer who agrees to pass on to his customers the amount of any refund (net after expenses of the refund proceeding) to the extent such tax has been passed on to such customers.

2. "Assessment," as used in this subtitle, shall include an assessment made pursuant to notice by the Department of Taxation and self-assessments made by a taxpayer upon the filing of a return or otherwise not pursuant to notice. Assessments made by the Department of Taxation shall be deemed to be made when a written notice of assessment is delivered to the taxpayer by an employee of the Department of Taxation, or mailed to the taxpayer at his last known address. Upon approval of the use of the specific medium by the taxpayer, an assessment shall also be deemed to be made when a notice of assessment is transmitted by the Department of Taxation to the taxpayer by either facsimile transmission or electronic mail to a facsimile machine or electronic mail address, respectively, as designated by the taxpayer in writing. Self-assessments shall be deemed made when the tax is paid or, in the case of taxes requiring an annual or monthly return, when the return is filed. A return filed or tax paid before the last day prescribed by law or by regulations pursuant to law for the filing or payment thereof, shall be deemed to be filed or paid on such last day.

3. "Person aggrieved by an action with respect to a transferred credit or other tax attribute" with standing to contest such action shall include the person who earned a credit or other tax attribute transferable under law and who has transferred such credit or other tax attribute and any subsequent transferor and transferee of such credit or other tax attribute who is affected directly or indirectly by an assessment based upon an adjustment to such credit or other tax attribute or by a formal notice of the Department's intent to adjust such credit or other tax attribute.

Code 1950, § 58-1117.20; 1980, c. 633; 1984, c. 675; 2000, cc. 369, 402; 2008, c. 549.

Any person assessed with any tax administered by the Department of Taxation may, within ninety days from the date of such assessment, apply for relief to the Tax Commissioner. Such application shall be in the form prescribed by the Department, and shall fully set forth the grounds upon which the taxpayer relies and all facts relevant to the taxpayer's contention. The Tax Commissioner may also require such additional information, testimony or documentary evidence as he deems necessary to a fair determination of the application. Any person aggrieved by an action by the Department with respect to a transferred credit or other tax attribute may apply for relief under this section or request to join an application already filed by another person assessed with tax or aggrieved by an action with respect to the same credit or other tax attribute. Any person aggrieved by an action by the Department with respect to debarment pursuant to § 58.1-1902 may apply for relief under this section. Notwithstanding the provisions of § 58.1-3, the Tax Commissioner shall have the discretion to permit the joinder of a party or consolidate proceedings on applications filed by different taxpayers if the interest of the party or the applications involve adjustments to credits or other tax attributes arising from the same transaction or occurrence, provided that no interests are prejudiced and the joinder or consolidation advances administrative economy.

On receipt of a notice of intent to file under this section, the Tax Commissioner shall refrain from collecting the tax until the time for filing hereunder has expired, unless he determines that collection is in jeopardy.

Any person whose tax assessment has been improperly collected by the Department may apply hereunder to assert a claim that any amount so collected was exempt from process.

The initial assessment of any tax administered by the Department of Taxation shall include a notice to the taxpayer that specifies all of the taxpayer's rights under this section, including but not limited to the right to have the Tax Commissioner refrain from collecting the tax upon the Commissioner's receipt from the taxpayer of a notice of intent to file for relief under this section.

Code 1950, § 58-1118; 1950, p. 597; 1956, c. 502; 1971, Ex. Sess., c. 13; 1972, c. 721; 1973, c. 446; 1980, c. 633; 1984, c. 675; 2007, c. 750; 2008, c. 549; 2020, cc. 681, 682.

If the Tax Commissioner is satisfied, by evidence submitted to him or otherwise, that an applicant is erroneously or improperly assessed with any tax administered by the Department of Taxation, or that an action with respect to a transferred credit or other tax attribute is erroneous, the Tax Commissioner may order that such assessment or action be corrected. If the assessment exceeds the proper amount, the Tax Commissioner shall order that the applicant be exonerated from the payment of so much as is erroneously or improperly charged, if not already paid into the state treasury, and, if paid, that it be refunded to him. If the assessment is less than the proper amount, the Tax Commissioner shall order that the applicant pay the proper taxes. He shall refund to the taxpayer any exempt funds which have been improperly collected. The Tax Commissioner shall refrain from collecting a contested assessment until he has made a final determination under this section unless he determines that collection is in jeopardy. In any action on an application for correction, the Tax Commissioner shall state in writing the facts and law supporting the action on such application.

For all outstanding liabilities upon which an application for correction has been filed, interest shall accrue on the outstanding liability at the rate prescribed by § 58.1-15 until nine months from the date of assessment. From nine months after the date of the related assessment until the Tax Commissioner issues a determination under this section, interest shall accrue at the "Federal short-term rate" established pursuant to § 6621(b) of the Internal Revenue Code. If the Tax Commissioner determines that any portion of the assessment is correct after considering the application for correction, accrual of interest at the rate prescribed in § 58.1-15 shall resume 30 days after the date of the Tax Commissioner's action on the application for correction. If the Tax Commissioner issues a determination within nine months from the date of assessment, interest shall accrue on the outstanding liability solely at the rate prescribed by § 58.1-15.

Code 1950, § 58-1119; 1972, c. 721; 1980, c. 633; 1984, c. 675; 1997, c. 428; 2008, c. 549; 2011, c. 295.

Any person filing a tax return or paying an assessment required for any tax administered by the Department may file an amended return with the Department within the later of (i) three years from the last day prescribed by law for the timely filing of the return; (ii) one year from the final determination date, as defined in § 58.1-311.2, for any change or correction in the liability of the taxpayer for any federal tax upon which the state tax is based, provided that the refund does not exceed the amount of the decrease in Virginia tax attributable to such federal change or correction; (iii) two years from the filing of an amended Virginia return resulting in the payment of additional tax, provided that the amended return raises issues relating solely to such prior amended return and that the refund does not exceed the amount of the payment with such prior amended return; (iv) two years from the payment of an assessment, provided that the amended return raises issues relating solely to such assessment and that the refund does not exceed the amount of such payment; or (v) one year from the final determination of any change or correction in the income tax of the taxpayer for any other state, provided that the refund does not exceed the amount of the decrease in Virginia tax attributable to such change or correction. If the Department is satisfied, by evidence submitted to it or otherwise, that the tax assessed and paid upon the original return exceeds the proper amount, the Department may reassess the taxpayer and order that any amount excessively paid be refunded to him. The Department may reduce such refund by the amount of any taxes, penalties and interest which are due for the period covered by the amended return, or any past-due taxes, penalties and interest which have been assessed within the appropriate period of limitations. Any order of the Department denying such reassessment and refund, or the failure of the Department to act thereon within three months shall, as to matters first raised by the amended return, be deemed an assessment for the purpose of enabling the taxpayer to pursue the remedies allowed under this chapter.

Code 1950, § 58-1118.1; 1972, c. 721; 1973, c. 446; 1979, c. 690; 1980, c. 633; 1984, c. 675; 1989, Sp. Sess., cc. 1, 2, 6; 1992, c. 678; 1994, c. 488; 1994, 1st Sp. Sess., cc. 2, 5; 1996, cc. 637, 654; 1998, cc. 358, 374; 2006, c. 234; 2010, c. 228; 2017, c. 444; 2020, c. 1030.

Any person who has paid an assessment of taxes administered by the Department of Taxation may preserve his judicial remedies by filing a claim for refund with the Tax Commissioner on forms prescribed by the Department within three years of the date such tax was assessed. Such taxpayer may, at any time before the end of one year after the date of the Tax Commissioner's decision on such claim, seek redress from the circuit court under § 58.1-1825. The Tax Commissioner may decide such claim on the merits in the manner provided in § 58.1-1822 for appeals under § 58.1-1821, or may, in his discretion, hold such claim without decision pending the conclusion of litigation affecting such claim. The fact that such claim is pending shall not be a bar to any other action under this chapter.

Code 1950, § 58-1119.1; 1980, c. 633; 1984, c. 675.

A. Any person assessed with any tax administered by the Department of Taxation and aggrieved by any such assessment, or aggrieved by an action by the Department with respect to a transferred credit or other tax attribute, or aggrieved by an action by the Department with respect to debarment pursuant to § 58.1-1902, may, unless otherwise specifically provided by law, within (i) three years from the date such assessment is made or (ii) one year from the date of the Tax Commissioner's determination under § 58.1-1822, whichever is later, apply to a circuit court for relief. The venue for such proceeding shall be as specified in subdivision 13 b of § 8.01-261. The application shall be before the court when it is filed in the clerk's office.

B. Except as provided in subsection C, the court shall require the applicant to pay the assessment before proceeding with its application upon granting a motion by the Tax Commissioner seeking to compel such payment and showing to the satisfaction of the court that the Department is likely to prevail on the merits of the case, that the application is (i) not well grounded in fact; (ii) not warranted by existing law or a good faith argument for the extension, modification, or reversal of existing law; (iii) interposed for an improper purpose, such as to harass, to cause unnecessary delay in the collection of the revenue, or to create needless cost to the Commonwealth from the litigation; or (iv) otherwise frivolous.

C. In lieu of the payment required in subsection B, the taxpayer may, within 60 days of the court's ruling, (i) post a bond pursuant to the provisions of § 16.1-107, with a corporate surety licensed to do business in Virginia, or (ii) file an irrevocable letter of credit satisfactory to the Tax Commissioner as to the bank or savings institution, the form and substance, and payable to the Commonwealth in the face amount of the contested assessment increased by twice the interest rate for underpayments published by the Department and in effect at the time the application is filed. The letter of credit shall be from a bank incorporated or authorized to conduct banking business under the laws of this Commonwealth or authorized to do business in this Commonwealth under the banking laws of the United States, or a federally insured savings institution located in this Commonwealth. Such bond or irrevocable letter of credit shall be conditioned upon payment by the applicant of the amount of the taxes, penalty and interest ordered by the court pursuant to § 58.1-1826, if any.

D. Any person whose assessment has been improperly collected from property exempt from process may within three years from the date such assessment is made, or if later, within one year of the Tax Commissioner's decision on a process exemption claim under § 58.1-1821 apply to a circuit court for relief. The venue for such proceeding shall be as specified in subdivision 13 b of § 8.01-261.

The Department shall be named as defendant, and the proceedings shall be conducted as an action at law before the court sitting without a jury. It shall be the burden of the applicant in any such proceeding to show that the assessment or collection or action on a transferred credit or other tax attribute complained of is erroneous or otherwise improper. The court's order shall be entered pursuant to § 58.1-1826.

E. Nothing in this section shall prevent the Tax Commissioner from collecting the assessment if he determines that collection is in jeopardy.

Code 1950, § 58-1130; 1950, p. 598; 1973, c. 280; 1976, c. 311; 1977, c. 624; 1980, c. 633; 1984, c. 675; 1985, c. 221; 1991, c. 714; 1998, c. 529; 2003, c. 908; 2008, c. 549; 2020, cc. 681, 682.

If the court is satisfied that the applicant is erroneously or improperly assessed with any taxes, or that an action with respect to a transferred credit or other tax attribute is erroneous, and that the erroneous assessment or action was not caused by the willful failure or refusal of the applicant to furnish the Department with the necessary information, as required by law, the court may order that the assessment or action be corrected. If the assessment exceeds the proper amount, the court may order that the applicant be exonerated from the payment of so much as is erroneously or improperly charged, if not already paid and, if paid, that it be refunded to him. If the assessment is less than the proper amount, the court shall order that the applicant pay the proper taxes and to this end the court shall be clothed with all the powers and duties of the authority which made the assessment complained of as of the time when such assessment was made and all the powers and duties conferred by law upon such authority between the time such assessment was made and the time such application is heard. The court may order that any amount which has been improperly collected be refunded to such applicant. A copy of any order made under this section or § 58.1-1827 correcting an erroneous or improper assessment shall be certified by the clerk of the court to the Tax Commissioner.

Code 1950, § 58-1134; 1972, c. 721; 1980, c. 633; 1984, c. 675; 1985, c. 221; 2006, c. 342; 2008, c. 549.

Irrespective of the foregoing provisions, when it is shown to the satisfaction of the court that there has been a double assessment in any case, one of which assessments is proper and the other erroneous, and that a proper single tax has been paid thereon, the court may order that such erroneous assessment be corrected, whether the erroneous tax has been paid or not and even though the application was not made within the period of limitation, as hereinbefore required.

Code 1950, § 58-1132; 1950, p. 598; 1972, c. 721; 1984, c. 675.

The Tax Commissioner or the taxpayer may take an appeal from any final order of the court to the Court of Appeals.

Code 1950, § 58-1138; 1972, c. 721; 1984, c. 675; 2021, Sp. Sess. I, c. 489.

If the final order of the court in any proceeding under §§ 58.1-1825 through 58.1-1828 grants the relief prayed for, no costs shall be taxed against the applicant; but in no event shall any costs be taxed against the Commonwealth in any proceeding under such sections.

Code 1950, §§ 58-1139, 58-1157; 1984, c. 675.

An order of exoneration under §§ 58.1-1826, 58.1-1827 or § 58.1-1828, when delivered to the Tax Commissioner, shall restrain him from collecting so much as is thus erroneously charged. If what was so erroneously charged has been paid, the order of the court under §§ 58.1-1826, 58.1-1827 or § 58.1-1828, when presented to the appropriate state or local official, shall serve as the only direction necessary to obtain refund of the amount so ordered.

Code 1950, § 58-1136; 1980, c. 633; 1984, c. 675.

No suit for the purpose of restraining the assessment or collection of any tax, state or local, shall be maintained in any court of this Commonwealth, except when the party has no adequate remedy at law.

Code 1950, § 58-1158; 1984, c. 675.

This chapter shall be construed to include taxes, levies, penalties and interest, or all of them.

Code 1950, § 58-1159; 1984, c. 675.

A. Interest shall be allowed and paid upon the overpayment of any tax administered by the Department, the refund of which is permitted or required under the provisions of this article, or on moneys improperly collected from the taxpayer and refunded pursuant to § 58.1-1822, at a rate equal to the rate of interest established pursuant to § 58.1-15. Such interest shall accrue from a date sixty days after payment of the tax, or sixty days after the last day prescribed by law for such payment, whichever is later, and shall end on a date determined by the Department preceding the date of the refund check by not more than thirty days. Notwithstanding the above, any tax refunded pursuant to a court order or otherwise as a result of an erroneous assessment shall bear interest from the date the assessment was paid. No interest will be paid on sales taxes refunded to a dealer unless the dealer agrees to pass such interest on to the purchaser.

B. 1. Notwithstanding the provisions of subsection A, if an individual overpays his individual income tax, the overpayment was for individual income taxes for the immediately preceding taxable year, and the overpayment has not been refunded, then interest shall accrue on the amount of the overpayment, beginning:

(i) thirty days after payment of such tax if the individual filed his individual income tax return via electronic means; or

(ii) sixty days after payment of such tax if the individual filed his individual income tax return using a method other than electronic means.

In no case shall interest be paid for the overpayment of the same tax pursuant to this subsection and subsection A.

2. For the purposes of this subsection, interest shall accrue at a rate equal to the rate of interest established pursuant to § 58.1-15. Such interest shall end on a date determined by the Department preceding the date of the refund check by not more than seven days.

C. For purposes of this section:

1. Any individual income tax deducted and withheld at the source and paid to the Department, and any amount paid as estimated tax, shall be deemed to have been paid on the day on which the return for such year's income was filed;

2. Any corporate or estate and trust income tax deducted and withheld at the source and paid to the Department, and any amount paid as estimated tax, shall be deemed to have been paid on the day on which the return for such year's income was filed, or the last day prescribed by law for filing such return, whichever is later; and

3. Any overpayment of tax resulting from the carry-back of a net operating loss or net capital loss shall be deemed to have been made on the day on which the return for the year in which the loss occurred was filed, or the last day prescribed by law for such filing, whichever is later.

D. The Tax Commissioner and the State Comptroller shall implement procedures to allow an individual requesting a refund of the overpayment of individual income tax when filing his individual income tax return to elect on such return to have the refund paid by check mailed to the address provided on his return. The ability of the individual to elect such refund check shall be in addition to other methods utilized by the State Comptroller for the payment of such refund, including but not limited to direct deposits or other electronic means.

Code 1950, § 58-1140.1; 1973, c. 446; 1974, c. 425; 1976, c. 456; 1980, c. 663; 1984, c. 675; 2002, cc. 184, 462; 2015, cc. 76, 229.

A. At or before an initial meeting relating to the determination of a tax, the Department shall provide the taxpayer a written explanation of the audit process and the taxpayer's rights in the process. At or before an initial meeting relating to the collection of a tax, the Department shall provide the taxpayer a written explanation of the collection process and the taxpayer's rights in the process.

B. A taxpayer may authorize a person, through a power of attorney filed with the Department, to represent the taxpayer at his cost. Once a taxpayer files a power of attorney with the Department in accordance with procedures developed by the Department and while the power of attorney is in effect, at the same time that the Department mails, issues, or otherwise provides to the taxpayer any written correspondence, documentation, or other written materials that relate to the tax matter for which the power of attorney has been filed, the Department shall provide a copy of the same to the person named as power of attorney. The copy shall be furnished to the person named as power of attorney under the same delivery method used for providing the written correspondence, documentation, or other written materials to the taxpayer.

The Department may not require a taxpayer to accompany the taxpayer's representative to the meeting unless the Tax Commissioner has summoned the taxpayer pursuant to § 58.1-216.

C. The Department shall suspend a meeting relating to the determination of a tax if, at any time during the meeting, the taxpayer expresses the desire to consult with an attorney, accountant, or other person who, through a power of attorney, may represent the taxpayer before the Department. However, after one such suspension has been granted and upon a finding that a taxpayer's request for suspension is frivolous or groundless, the Department may terminate the meeting and issue an assessment, if appropriate.

D. The Department shall allow a taxpayer to make an audio recording of a meeting relating to the determination of a tax at the taxpayer's expense and using the taxpayer's equipment. The Department may make an audio recording of such meetings at its own expense and using its own equipment. The Department shall, upon request of the taxpayer, provide the taxpayer a transcript of a meeting recorded by the Department. The Department may charge the taxpayer for the cost of the requested transcription and reproduction of the transcript. Receipts from the charges for the transcripts shall be credited to the Department for reimbursement of transcription expenses.

1996, c. 634; 2009, c. 503.

The Tax Commissioner shall abate any portion of any tax, interest, and penalty attributable to erroneous advice furnished to the taxpayer in writing by an employee of the Department acting in his official capacity if:

1. The written advice was reasonably relied upon by the taxpayer and was in response to a specific written request by the taxpayer;

2. The portion of the penalty or tax did not result from a failure by the taxpayer to provide adequate or accurate information; and

3. The facts of the case described in the written advice and the request therefor are the same, and the taxpayer's business or personal operations have not changed since the advice was rendered.

1996, c. 634.

Reserved.