Richmond, Fredericksburg & Potomac R. Co. v. State Corp. Commission, 780073

• Decision Date: 31 August 1978
• Docket Number: No. 780073,780073
• Citation: 219 Va. 301,247 S.E.2d 408
• Parties: RICHMOND, FREDERICKSBURG AND POTOMAC RAILROAD COMPANY v. STATE CORPORATION COMMISSION et al. Record
• Court: Virginia Supreme Court

Page 408

247 S.E.2d 408

219 Va. 301

RICHMOND, FREDERICKSBURG AND POTOMAC RAILROAD COMPANY v. STATE CORPORATION COMMISSION et al.

Record No. 780073.

Supreme Court of Virginia.

Aug. 31, 1978.

Fred C. Alexander, Jr., Alexandria (Urchie B. Ellis, Richmond, Boothe, Prichard & Dudley, Alexandria, on brief), for appellant.

Charles G. Flinn, Deputy County Atty., Lewis S. Minter, Richmond (Jerry K. Emrich, County Atty., David R. Lasso, Asst. County Atty., on brief), for appellees.

Before I'ANSON, C. J., and CARRICO, HARRISON, COCHRAN, HARMAN, POFF and COMPTON, JJ.

COMPTON, Justice.

In this appeal of right, we review the assessment established by the State Corporation Commission for the 1975 tax year on 156 acres of real estate in Arlington County owned by the Richmond, Fredericksburg and Potomac Railroad Company.

The Constitution of Virginia and the pertinent statutes require the Commission to assess for local taxation the value of the real property of railroads and other public service corporations. Under the procedure, the Commission's Division of Public Service Taxation initially determines the appraised property value. This valuation is furnished to the railroad and becomes "the fair cash value" of its real property which must be reported annually to the Commission, together with the designation of the locality in which such property is situated. Code § 58-524. The assessed values are then determined by the Commission, acting in its administrative capacity, and are certified to the locality, which applies its own tax rate to such values and levies the tax. Code § 58-522.

In making the assessment which is the subject of this controversy the Commission appraised RF & P's Arlington property at $44.6 million for an assessed value of $13.2 million. With application of the Arlington County Tax rate for 1975 of $3.78 per $100 of assessed valuation, RF & P paid taxes for that year of $499,973.86 on the land in question. The total tax paid in 1975 to Arlington County was in excess of $516,000, but that figure included the tax on all improvements, which is not in issue here.

In November of 1975, the railroad filed its application, pursuant to Code § 58-672, for a review and correction of the assessment, asked that the valuation be reduced, and sought to recover from Arlington County the excess taxes paid on account of the allegedly erroneous assessment. During eight days between September of 1976 and February of 1977, the Commission conducted a hearing on the application, which was opposed by Arlington County and the Commission staff. In a December 1977 order, accompanied by a written opinion, the Commission affirmed the tax assessment and denied the relief sought in the application. The RF & P has appealed under Code § 58-679.

The real estate in question, which included carrier (operating) and non-carrier parcels, is a part of Potomac Yard, a large railroad classification facility located in a densely developed part of Arlington County and in the City of Alexandria. The Arlington County portion of the Yard lies in a generally north-south corridor formed by Jefferson Davis Highway (U.S. Route 1) on the west and George Washington Memorial Parkway on the east. This approximately two-mile-long area extends from the Potomac River on the north to Four Mile Run on the south.

The Commission valuation was stated by reference to 15 tax zones shown on two railroad valuation maps introduced as exhibits. Carrier parcels, consisting of five zones containing 116.5 acres, yielded a fair cash value of $31.7 million. Non-carrier parcels, virtually all of which were under lease to third parties at the time of assessment, consisted of ten zones containing 39.5 acres and were valued by the Commission at $12.9 million.

According to the evidence, the method used by the Commission appraiser to value the land was to compare the subject property with other land which was appraised by the locality. Initially, and immediately prior to evaluating the railroad's property, the Commission obtained from the Arlington assessor the most recent local assessment on properties adjacent to the railroad property. This gave the Commission appraiser an overview of the property surrounding the railroad parcels together with the values as determined by the local assessor for local real estate taxation purposes. The Commission appraiser then inspected the railroad property and proceeded to make his determination of value.

In determining the value of the railroad parcel, the appraiser would calculate an average of the unit (acre or square foot) value as determined by reference to the value of the surrounding property. This preliminary unit value was adjusted for characteristics peculiar to railroad property. For example, the preliminary or "base" unit value was discounted for such factors as peculiar parcel size or shape, poor topography, lack of public sewer and water service, and poor or lack of access to public streets. The adjusted unit value was then multiplied by the number of units in the assessment zone. This value was next multiplied by a "factor" of 1.1627, to be discussed in more detail Infra. According to the record, "(i)n some instances the product was rounded. . . . The result of the previous multiplication was again divided by the number of units (square feet or acres) in the zone being appraised. This amount (was) sometimes rounded. . . . The last step (was) to again multiply the adjusted unit value resulting in (the prior step) by the appropriate area measure. The result (was the Commission's) final Fair Market Value for the zone."

As stated in the opinion of the Commission, it determines value "by 'comparing' railroad Land with what the appraiser considers comparable nearby Land without regard to any improvements on either." The opinion further states that "(i)n appraising public service property, the (Commission) appraiser does not perform 'fee appraisals', nor has he ever done so. His purpose is to arrive at a land value for tax purposes which will result in railroad property bearing with adjoining and nearby land an equal share of the local tax burden."

To the foregoing valuation determined by the Commission, an appropriate percentage established by law was applied, producing the assessment for local taxation.

The use of the "factor", Supra, under attack by the RF & P in this proceeding, resulted from the enactment in 1966 of the so-called "Bemiss Bill", Code § 58-512.1. ¹ Prior to 1966, the assessed values of public service property were usually determined by applying a uniform 40 percent assessment ratio. This was in recognition of the fact that the mandate of the Constitution of Virginia, now Article X, § 2, requiring real property to be assessed at fair market value, had been "so honored in the breach that no assessors (felt) called upon to apply it in practice." Washington County National Bank v. Washington County, 176 Va. 216, 218, 10 S.E.2d 515, 516 (1940). See Southern Railway Co. v. Commonwealth, 211 Va. 210, 214, 176 S.E.2d 578, 581 (1970). But the Constitution, now Article X, § 1, also provides that all taxes shall be uniform upon the same class of subjects within the territorial limits of the authority levying the tax. So the courts, "recognizing the general custom of undervaluing property and the difficulty of enforcing the standard of true value, . . . sought to enforce equality in the burden of taxation by insisting upon uniformity in the mode of assessment and in the rate of taxation." Id. Thus, this court had said that the Commission's practice of assessing public service company property at 40 percent of its fair market value was not an abuse of discretion. Id.

After 1966, the Commission's Division of Public Service Taxation was required under the Bemiss Bill to apply to appraised values, not the uniform 40 percent rate, but "the local assessment ratio prevailing in such taxing district for other real estate as determined by the most recently published findings of the (State) Department of Taxation; . . . ." ²

Accordingly, in fixing the assessment of the subject property as of January 1, 1975, the Commission staff was required to apply, not a rate of 40 percent, but a ratio of 29 percent to the full value, such percentage being the latest local assessment ratio for Arlington published by the Department of Taxation at the time. ³

The foregoing "local assessment ratio" is based on the relation of locally assessed values to true fair market value. Thus, for the applicable period prior to fixing the assessment, the Department of Taxation had determined that property was being assessed by the locality at 34.4 percent of fair market value in lieu of 40 percent, the fixed multiple actually used by the County. Therefore, when the Commission became obligated under the Bemiss Bill to use a lower ratio to determine the assessed values instead of the ratio of 40 percent (which was also the local fixed multiple), it became apparent to the Commission, according to its opinion, that the assessed values fixed by it "would almost invariably be less than the assessed values placed upon the 'comparable' land areas" by the locality.

The Commission opinion illustrates this problem as follows: "(L)et's apply the 1975 Arlington County local assessment ratio (determined by the Department of Taxation) to a typical situation. The local 'comparable' parcel is appraised at $1,000; finding the public service parcel identical, the Division of Public Service Taxation fixes the value of the public service parcel also at $1,000. Arlington would apply its fixed multiple (which was 40 percent in 1975) to the locally assessed 'comparable' resulting in a taxable value of $400.00. On the other hand, (the Commission) was required by § 58-512.1 to apply the Virginia Department of Taxation local assessment ratio of 29 percent to the appraised value in order to arrive at the assessed value of the public service parcel. The taxpayer...