By Stephen Burroughs and Michele Borens

The Circuit Court of Henrico County, Virginia, recently affirmed a ruling by the Commissioner of the Virginia Department of Taxation (Commissioner) that determined a cable provider’s set-top boxes are not “machines” for local property tax purposes and therefore not subject to Henrico County property tax. Virginia statute classifies property used in a cable television business, though tangible in fact, as intangible property not subject to local property tax. However, the statute excludes machines, tools, office furniture and other specific items from this general rule to permit their local assessment. Henrico County argued that the cable provider’s set-top boxes were taxable as “machines” under the statute. The court first determined that the statute in question was ambiguous because multiple definitions of the word “machine” could reasonably be used to alter the statute’s scope, then (1) recognized that ambiguous tax statutes are construed against taxation, and (2) afforded great weight to the Commissioner’s interpretation of the statute in the original ruling. The Commissioner relied on legislative history and its own contemporaneous fiscal impact statements to conclude that in 1984, the General Assembly specifically intended to exclude cable set-top boxes from local property tax when it removed “tuners” and “converters” from the statute, thus permitting taxation of specific types of cable property. The court also found persuasive several other Virginia circuit court decisions that found cable set-top boxes to be intangible property and therefore excluded from local property tax. Ultimately, Henrico County did not carry its burden of proving that the Commissioner erred in ruling for the taxpayer. Dir. of Finance of Henrico Cnty. v. Verizon Online, LLC, No. CL 13-3050 (Henrico Cnty. Cir. Ct., Mar. 2, 2016)