Sounds to me like the State thinks you have a real Airplane, not a UAS, because of the "N" designation. Easy mistake for a non technical person to make. Not agreeing with them by any means, but from their point of view, you are a businessman with an undocumented high dollar purchase (I'm certain they are thinking it's over $100,000).
The red flag here is that a businessman (you) who owns a real airplane might be underreporting income. Or trying to hide assets from the state. That is why the IRS is involved. I went through an airport in Frankfurt Germany with some Swarovski crystals, and they dived on my handheld baggage like they found the Holy Grail. I was fascinated by this interest, and the guy next in line told me there was a huge emerald smuggling going on through this airport, and that's what it was all about. When the woman inspector got to the wrapped package and tore it open and saw those fake crystals, the look on her face was priceless (she gave me a look that could stop time), and I had to put my hand over my mouth because it just made me start laughing). She really thought she found something, and I bet your state thinks the very same--high dollar assets not being reported. I would just bet your state and local IRS think that's what's going on here.
Rather than dig in your heels and get belligerent about it, just make a point of documenting all of it, and the costs. Before you get hold of a jerk IRS collection agent, just make sure they know it's a UAS, not a $$$ aircraft.
Virginia is a "cash register" state, and has this stupid "taxes not paid but owed to the Commonwealth" question in their state income tax-- real pain in the butt. I buy so much online, I don't keep track of what is taxed, and what isn't. I just make a guess of about $50 in unpaid taxes, and so far, they've been fine with me about it.