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The Constitution of Virginia, Article X, sets forth dual standards for all tax assessments in Virginia. Section 1 provides that all assessments shall be uniform. The other side of the coin is set forth in Section 2, requiring all assessments to be at fair market value. By judicial decision, it has long been Virginia law that where these two standards conflict, the standard of uniformity prevails, subject to the caveat that the assessment can never exceed fair market value. Thus, where it is shown that comparable properties generally are assessed at less than fair market value, then the subject property is entitled to be “equalized” or assessed at a comparable discount. Tuckahoe Women’s Club v. City of Richmond, 199 Va. 734 (1958).

The relevant universe for purpose of a uniformity challenge consists of comparable properties located within “the territorial limits of the authority levying the tax.” Hirschler recently tried an assessment challenge in Fairfax Circuit Court on behalf of a prominent country club located in Fairfax City. A study of assessments of comparable golf courses throughout the suburban DC metro area -- including several in Fairfax County -- indicated the property was massively over-assessed. However, the subject was the only golf course located in Fairfax City thus effectively foreclosing any inquiry into equalizing the assessment of the subject with competitive golf courses. Thus, we were limited to contesting the assessment on fair market value grounds. 

Similarly, the Virginia Supreme Court has held that in order to successfully maintain a uniformity challenge, the taxpayer must show that comparable properties generally are assessed in non-uniform manner relative to the subject. These decisions suggest that what must be shown is a disparity in assessment methodology. In particular, a uniformity challenge cannot be based on difference in the amount of the assessment in relation to a single comparison property even if, as in Board of Supervisors v. Leasco Realty, Inc., 221 Va. 158 (1980), the comparison property is adjacent to the subject parcel and “closely comparable.”    

Given these constraints, recent jurisprudence under Article X, § 1 mainly consists of various reasons why uniformity challenges fail. A quick review of the annotations under Article X, § 1 indicate 17 reported Virginia Supreme Court cases in the last 50 years with all but two being resolved in favor of the taxing authority, and the most recent successful uniformity challenge being decided 27 years ago. Accordingly, the vast majority of cases brought before the circuit courts proceed exclusively on Article X, § 2’s fair market value standard. However, in a recent decision by Justice Goodwyn, International Paper Company v. County of Isle of Wight, Va. (Record No. 190542, September 17, 2020), the Virginia Supreme Court has breathed fresh life into Article X, § 1. 

The facts of the case are virtually impenetrable. Notwithstanding the constitutional standard requiring fair market value assessment, the General Assembly has by statute permitted localities to assess business personal property based on a percentage of original cost. Virginia Code § 58.1-3507(B). In many localities this means that the item is initially assessed at something approaching acquisition cost and then depreciated over time. The Virginia Supreme Court, however, has approved this methodology even where, as in Western Refining v. County of York, 292 Va. 804 (2016) (argued by the author), the locality employs a static percentage that does not change no matter the age of the item. (The refinery equipment at issue in the case dated from the original development of the property back in the 1950’s and had long since been fully depreciated under federal tax law). The statute goes on to provide that where a taxpayer produces an appraisal of actual value of the equipment, the assessor is required to “consider” it.

Isle of Wight County assessed all business personal property regardless of age at 100% of original cost. International Paper Company challenged its assessment based on an appraisal and won a sizable reduction before the trial court. Isle of Wight County paid the resulting refund. This is where the case gets interesting. The County then retroactively reduced all other business tangible personal property assessments in the County. This was coupled, however, with a substantial increase in the personal property tax rate. Then the County adopted an ordinance authorizing “economic development” grants to all taxpayers negatively impacted by the rate increase. The net effect of these measures was that Isle of Wight County effectively offset the refund won by International Paper in the original action.

International Paper sued to challenge the foregoing actions by Isle of Wight County on multiple grounds. Their predominant theory of the case appeared to be that the Board of Supervisors had violated separation of powers and the Circuit Court’s jurisdiction by effectively negating its holding in the original action. The Supreme Court rejected this and other challenges by International Paper with the significant exception of a claim under Article X, § 1. The Court looked at the approximately 100 taxpayers in Isle of Wight who file business tangible personal property tax returns and computed, net of the assessment decrease, the rate increase and the “economic development” grants, the effective tax rate applied to each taxpayer. What this process revealed was that on a net basis, there was no consistency in the effective tax rate paid by businesses in the County. The County attempted in vain to argue that the methodology was uniform even if the results were not. The Supreme Court rejected the County’s position and held that Isle of Wight’s business tangible personal property assessments violated the uniformity standard of Article X, § 1 of the Virginia Constitution. 

The facts in International Paper were very unusual and it is certainly possible that this decision will not end up reflecting a sea of change in the Virginia Supreme Court’s application of Article X, § 1. It is extremely encouraging, however, that the constitutional standard of uniformity has received fresh attention and potentially new life. 

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Luis F. Ruiz

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