Int'l Paper Co. v. Cnty. of Isle of Wight

Decision Date17 September 2020
Docket NumberRecord No. 190542
Citation847 S.E.2d 507
CourtVirginia Supreme Court

Craig D. Bell (E. Duncan Getchell, Jr. ; Robert W. Loftin ; Michael H. Brady ; McGuireWoods, on briefs), Richmond, for appellant.

Andrew R. McRoberts (Debra L. Mallory ; David C. Tait ; Sean M. Hutson ; Sands Anderson, on brief), Richmond, for appellee.

Amici Curiae: The Local Government Attorneys of Virginia, Inc. and The Virginia Association of Counties (George A. Somerville ; Harman, Claytor, Corrigan & Wellman, on brief), Richmond, in support of appellee.

PRESENT: All the Justices


In this appeal, we consider whether the circuit court erred in granting a county's motion to strike a taxpayer's application for correction of a machinery and tools tax assessment that the taxpayer claimed was non-uniform, invalid, and illegal.


International Paper Company (International Paper) is a New York-based corporation that owns a paper production facility in Isle of Wight County (the County). The paper facility, which was repurposed and reopened in June 2012, after being idled in 2010, utilizes paper-making machinery for its manufacturing operations.

Between tax years 2012 and 2015,1 the County levied a machinery and tools (M&T) tax on all businesses or persons owning qualifying machinery in the County, including International Paper. During those tax years, the County Board of Supervisors (the Board) passed ordinances which set the M&T tax rate at $0.70 per $100 of assessed value. The Commissioner of the Revenue of the County, Gerald Gwaltney (Commissioner Gwaltney), assessed all M&T property at 100% of its original total capitalized cost in each of those years.2 International Paper paid the M&T taxes assessed by the County in those tax years.

International Paper had discussions with Commissioner Gwaltney concerning the assessed value of its paper machinery, and it subsequently hired an independent appraiser to value its M&T property. The appraiser determined that the fair market value of International Paper's paper machinery was approximately 60% of the County's valuations.

A. International Paper Challenges Tax Assessments for Tax Years 2012–14

On December 29, 2014, International Paper filed an application for a correction of erroneous assessments for tax years 2012–14 (the First Refund Action) in the Circuit Court of Isle of Wight County. On March 15, 2017, after holding a trial, the circuit court entered final judgment in favor of International Paper in the First Refund Action. The circuit court held that the County's M&T tax assessment methodology was "clearly erroneous" because it valued International Paper's M&T property above fair market value. The circuit court ruled that the County owed International Paper approximately $2.4 million in tax refunds, plus interest, for tax years 2012–14.

The County subsequently petitioned this Court regarding an appeal of the judgment in the First Refund Action concerning the 2012 tax year; the petition was refused in an October 27, 2017 order. By November 1, 2017, the County had tendered full payment to International Paper and satisfied the judgment entered in the First Refund Action.

On October 3, 2016, during the pendency of the First Refund Action and after the County had retained an expert who concluded that the County's assessment of M&T property at 100% of its original capitalized cost resulted in valuations of M&T property in excess of fair market value, Commissioner Gwaltney, after public notice, changed the valuation methodology of M&T property in the County from 100% of original capitalized cost to 40% of original capitalized cost for M&T tax year 2016. He recommended that the Board adopt an amended M&T tax rate of $1.75 per $100 of assessed value for M&T tax year 2016, in order to make the change to the 2016 M&T property valuations revenue neutral.

On October 20, 2016, the Board passed an ordinance increasing the M&T tax rate from $0.70 per $100 of assessed value to $1.75 per $100 of assessed value, for M&T tax year 2016. The ordinance noted that the increase was necessary for the County's revenues generated from the M&T tax to "remain neutral for the 2016 tax year," in light of Commissioner Gwaltney's reduction of the assessed value of M&T property in the County.

B. The County Retroactively Corrects 2013–15 Assessments for All M&T Taxpayers

In December 2016, Commissioner Gwaltney sent letters to M&T taxpayers in the County conceding that their M&T property valuations for tax years 2013–15 had been above fair market value. He also informed them that the valuations for those tax years would be retroactively reduced and tax refunds would be voluntarily issued because of the overpayments the County had received from the M&T taxpayers as a result of the improper valuations. The County subsequently issued tax refunds, based on a revised assessment of the M&T property values at 60% of original capitalized cost, rather than the 100% of capitalized cost at which it was previously assessed and taxed, for the 2013, 2014, and 2015 M&T tax years. The correction of the assessments resulted in the issuance, by the County, of refunds which totaled approximately $5.6 million.3

Along with their refund checks, M&T taxpayers also received a letter from the County Administrator dated January 6, 2017, in which the administrator stated:

The amount of the refunds was not anticipated in this year's Operating Budget and will create a potential deficit that the board is now taking steps to address. One of the anticipated steps is an increase in the M&T tax rate for the County's fiscal year 2017-18 budget. The adjustment will only be for tax year 2017.
We have estimated that any tax increase over the current tax amount will be very close to the amount of the refund you have just received.
C. The County Increases the M&T Tax Rate for Tax Year 2017 and Implements Tax Relief Program

The Board, being informed that well over five million dollars and a significant percentage of the County's general fund had to be expended because of the past M&T valuation error, sought to replenish its general fund to avoid the negative fiscal impacts caused by the required payment of the M&T tax refunds. At a Board meeting on January 5, 2017, Commissioner Gwaltney advised the Board that it should substantially raise the M&T tax rate to replenish funds from the general fund used to pay the M&T tax refunds. He suggested that the increased tax rate be in place for only one year and explained that the increased tax rate he proposed was set to an amount sufficient to allow the tax increase to be accompanied by some type of payment program for M&T taxpayers to "offset any net increase" in M&T tax assessments, above the amount of the M&T tax refund the M&T taxpayer had received.

The Board followed Commissioner Gwaltney's suggestion regarding the M&T tax plan for tax year 2017. On May 11, 2017, the Board passed an ordinance increasing the M&T tax rate to $4.24 per $100 of assessed value for tax year 2017. Then, on June 15, 2017, the Board passed a resolution authorizing an economic development retention grant program (the M&T Tax Relief Program) to benefit certain M&T taxpayers. That resolution states, in pertinent part:

WHEREAS, in cooperation with the Board of Supervisors, the Commissioner of the Revenue adjusted the County's M&T tax assessments for multiple tax years and made appropriate adjustments of tax amounts for prior years including 2016; and,
WHEREAS, in an effort to mitigate the impact on County revenues resulting from the adjustment to M&T taxes, the Board of Supervisors adopted a [ ] one-year adjustment to the machinery and tools tax rate for FY2017-18 with the intent that any businesses negatively impacted by the adjustment would be eligible for an Economic Development Retention Grant.
NOW, THEREFORE, BE IT AND IT IS HEREBY RESOLVED that the Board of Supervisors of the County of Isle of Wight, Virginia authorizes the issuance of Economic Development Retention Grants in the cumulative amount of [$32,125] to businesses negatively impacted by the adjustment to the M&T tax.

In a July 17, 2017 meeting, the Board passed a resolution to amend its operating and capital budgets, which states, in relevant part:

BE IT FURTHER RESOLVED that machinery and tools tax revenues in the amount of $5,149,571 be appropriated to the FY2017-18 General Fund Non-Departmental Reserves – Fund Balance.
BE IT FURTHER RESOLVED that machinery and tools tax revenues in the amount of $1,164,274 be appropriated to the FY2017-18 General Fund Operating Budget to provide Economic Development Incentive Grants.

The Board thus funded the M&T Tax Relief Program with the $32,125 in appropriations and approximately $1.1 million which would be raised from the increased 2017 M&T tax.

The County distributed the M&T Tax Relief Program "grants" by automatically crediting the M&T relief amounts on taxpayers’ M&T tax bills. All M&T taxpayers were eligible to receive a credit against the amount of their 2017 M&T tax assessment equal to the amount that their M&T taxes increased because of the higher 2017 tax rate (the difference between the amount owed under the then current $4.24 rate per $100 of assessed value, minus the amount that would have been owed under the 2016 M&T tax rate of $1.75 per $100 of assessed value), reduced by the refund amounts for M&T tax years 2013–15 received by the taxpayer. This resulted in only the taxpayers who received refunds having to pay the substantially increased M&T tax rate, with the increased amount owed by them being limited to the amount of the M&T tax refund they had received from the County.

As expressed by the Board, "any business negatively impacted by the adjustment" received an M&T Tax Relief Program "grant," which prevented those negatively impacted from being burdened by the tax increase. The payment by an M&T taxpayer, of an amount up to the amount of the M&T...

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