Virginia – When is Idle Equipment Idle?

Posted on June 13, 2012

If you are a business in Virginia with idle (not in use) machinery and equipment, you may be eligible for a business tangible property tax exemption on such equipment.  Knowing the process for declaring idle equipment will save you time and money but only if you plan ahead.
Virginia Code § 58.1-3507 A provides that: Machinery and tools, except idle machinery and tools…used in a manufacturing…business shall be listed and are hereby segregated as a class of tangible personal property separate from all other classes of property and shall be subject to local taxation only.

Multi-Pronged, Two-Part Test
If there are machinery and tools that you want to declare as “idle” on a local Virginia tangible property tax return (thereby avoiding taxation), there is a two-part test to be passed before the locality will accept your declaration.  In addition, each part has several prongs which must be met.  Adequate prior planning is essential.
The first issue you have to decide is for which tax year you plan to make your idle equipment designation.  Keep in mind that Virginia’s assessment date is January 1st.  
As an example, let’s say you want to state on your 2014 tax return that you have idle equipment.  Based on that, the first part of the test involves notifying the locality involved.  Notification must be done in writing by April 1st in the year prior to the year you declare the equipment idle.  You must state: 1) exactly which equipment will be removed from service by December 31st; 2) that the machinery will not be in service on January 1st; and 3) that no reasonable prospect exists that the machinery will be returned to duty at any time during the next tax year.  To be safe, you should utilize a solid paper trail for this step (e.g. return receipt, overnight mail addressed to a specific person, requiring their signature, etc.).
Passing the second part of the test is basically identical to the first part.  The machinery: 1) must have not been in use for at least one continuous year prior to tax day; 2) must not be in use on tax day; and 3) must have no prospect of being returned to use during the tax year.
Finally, remember to keep complete and accurate records.  It will behoove you to work closely with the local tax assessor throughout this exercise, as they have final authority to determine what constitutes “proper documentation”.    

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