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County’s machine and tool tax was not uniform

Virginia Lawyers Weekly//January 5, 2023

County’s machine and tool tax was not uniform

Virginia Lawyers Weekly//January 5, 2023

Where a county increased its machinery and tool tax for one year to cover a budget shortfall resulting from prior M&T tax refunds but issued economic grants to offset the tax increase to only those businesses “negatively impacted by the adjustment to the M&T tax,” this resulted in an unconstitutional nonuniform tax.

The circuit court correctly awarded appellee a full refund of the M&T tax for the applicable year.


Appellee, International Paper, does business in Isle of Wight County, the appellant in this case. The county assesses a tax on the machinery and tools that the company uses in its factory. The company received a $2.4 million M&T tax refund for tax years 2012-2014 because the county assessed the company’s machinery above fair market value.

While the case was pending, an expert noted that the county was using an incorrect valuation method. The county revenue commissioner challenged that method, resulting in $5.6 million in refunds for tax years 2013-2015. The refunds resulted in a large shortfall in the county’s budget.

To make up the shortfall, the county advised M&T taxpayers that the M&T tax for fiscal 2017-18 would be increased. The county’s letter stated, “‘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.’ … This tax rate would ‘be accompanied by some type of payment program’ for the taxpayers that would ‘offset any net increase’ in M&T tax assessments.”

The Board of Supervisors approved an increase to $4.24 per $100 of assessed value for tax year 2017. A few weeks later, the board passed a resolution, stating in part, that “‘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 [M&T Tax Relief Program]. … (emphasis and alterations in original).’ …

“The net effect of this approach is that the only taxpayers who had to pay the significantly increased M&T tax rate were the ones who received refunds, and the increased amounts they owed were limited to the amount of the M&T tax refund they had received from the County. …

“International Paper filed a second refund action, alleging among other things that the County’s tax and retention grant scheme violated the uniformity requirement of the Virginia Constitution.” The circuit court ruled against the company. We remanded in International Paper I and the trial court found that the scheme did result in nonuniform taxation.

“The circuit court declined to sever the grant retention program from the underlying tax rate. The court concluded that International Paper was entitled to a refund in the amount of $5,485,481.81, the entirety of the M&T tax it paid in 2017, plus interest.”

The county appealed.


“In International Paper I, we concluded that the company had established a prima facie case that the County’s interwoven taxation scheme was non-uniform. … On remand, the circuit court found the company’s evidence credible and ruled in its favor.

“We have little difficulty concluding that, under the standard of review, the circuit court’s judgment must be affirmed. International Paper marshalled ample evidence to prove that the higher tax rate and the Economic Development Retention Grant Program were integrated and interwoven and resulted in non-uniform taxation. …

“[T]he company established that:

“• the express purpose of the M&T Tax Relief Program was to relieve liability for the 2017 M&T tax rate increase;

“• the M&T Tax Relief Program had a purpose, at least in part, to relieve from liability for the 2017 M&T tax a sub-class of M&T taxpayers deemed by the County to be harmed by the M&T tax rate increase;

“• the M&T Tax Relief Program was structured to directly exempt M&T taxpayers from liability, and the County’s economic development office played no part in the creation or implementation of the program;

“• the payments from the M&T Tax Relief Program directly offset M&T tax liability and were subtracted from each taxpayer’s bill;

“• the one-time M&T Tax Relief Program factually correlated with the 2017 M&T tax rate increase to $4.24 per $100 of assessed value, and the program was enacted shortly after the tax increase and applied to the same time period;

“• the M&T Tax Relief Program was primarily funded by the 2017 M&T tax rate increase; and

“• the amount of the ‘grant’ was determined by each taxpayer’s net tax increase, and thus the M&T Tax Relief Program correlated with the 2017 M&T tax process.

“In International Paper I, we held that this evidence established a prima facie case of a non-uniform tax. On remand, the County presented no new evidence.” The circuit court correctly concluded the M&T tax was not uniform.

No severance

The county argues that the grant program and the tax increase should be severed, and that the tax increase should be preserved.

“[T]he circuit court found that there was a ‘clear linkage between the tax rate … and the … grant program.’ Abundant evidence established that the two were enacted together to serve a complementary purpose, that the tax rate and the grant program operated in tandem with one another.

“The manifest intent of the County Board of Supervisors was not simply to enact a high tax rate at $4.24 per $100 of assessed value; it was to impose a high rate of taxation which would then be mitigated through the economic retention grants.

“In light of the overwhelming evidence of the interwoven purpose and operation of the high tax rate and the economic retention grants, we conclude that invalidating the Tax Relief Program while preserving the high tax rate would not be an appropriate remedy.”


County of Isle of Wight v. International Paper Co., Record No. 211032; (McCullough) Dec. 29, 2022. From the Circuit Court of the County of Isle of Wight (Eason Jr.) Andrew R. McRoberts (David C. Tait; Sands Anderson, on briefs), for appellant. Craig D. Bell (Robert W. Loftin; Alec V. Sauble; McGuireWoods, on brief), for appellee. Amici Curiae: Local Government Attorneys of Virginia, Virginia Municipal League, Virginia Association of Counties, Virginia Association of Assessing Officers, and Commissioners of the Revenue Association of Virginia (Adam D. Melita; Patricia A. Melochick, on brief), in support of appellant. VLW 022-6-059, 16 pp.

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